Gold & Silver Quantity Vaulted In London Declared For First Time: More Transparency Gives Us A Behind The Scenes View Of Custodian Banks & The BoE

This week saw the LBMA publish the first of an ongoing dataset detailing the quantity of gold and silver physically vaulted in London for the London clearing system.

We wrote recently about Baird & Co. opening a new store in London’s Hatton Garden district. Importantly however, the city is not only known for its jewellery shops and retail gold sales. London is also a global gold trading hub with an average of over $18bn of gold cleared every day in March 2017.

It seems appropriate then to open today’s article with a quote directly from the LBMA website regarding the quantity of gold and silver physically vaulted in London for the London clearing system.

London vaulted silver thanks to UBS

“As at 31 March, 2017, there were 7,449 tonnes of gold, valued at $298 billion and 32,078 tonnes of silver valued at $19 billion. This equates to approximately 596,000 gold bars and 1,069,255 silver bars.”

For some context, the LBMA voiced their intention in the middle of 2016 to commence the publication of data on the quantity of physical gold and silver vaulted in London. No reason other than “transparency” was provided either at the time or since and the data was said to be for the benefit of analysts and market participants as a whole.

True to their word, this week saw the first publication of this data and it makes for interesting reading. The publication will be monthly and will be issued with a three month lag.

Precious Metals Strategist for UBS, Joni Tevas, writes that the statistics “include gold and silver in the form of large bars, kilo bars or coins, but exclude jewellery and other private holdings held in vaults that are not part of the London clearing system”. Some of the metal included in the tally backs shares in ETFs (exchange-traded funds).

In order to collate the data, information is compiled from seven custodian vaulting banks. Joni lists these banks as “HSBC, ICBC Standard Bank and JP Morgan, which are also clearing members of the LBMA, as well as Brinks, G4S Cash Solutions (UK), Malca-Amit and Loomis International (UK) Ltd., which are also LBMA members.”

In addition to these seven is the Bank of England which holds around 68% of the total quantity of gold holdings specified in the March figures. In order to enable them access to London gold market liquidity, the BoE principally offers custody services to central banks. Interestingly, the BoE does not provide silver custodian services. Silver is considered in what Joni describes as the official sector to be “a cheaper and more volatile way to get exposure to gold price trends, attributes that are likely more attractive for investors”.

Preeti Varathan of qz.com explains that “for central banks, maintaining gold reserves is a legacy from the time when it was mandated, and typically an inflation hedge or service offered to private companies. For this reason, it’s not surprising that the Bank of England oversees around 400,000 bars of gold”.

Central banks aside however, gold held by private institutions offer us an insight into the economy that wasn’t previously available. Variations in the data now made available by the LBMA may be evaluated in order to detect any deterioration of confidence or accumulation of anxiety regarding the broader economy.

This post is original content written today for Ainslie Bullion.