Bank of England Gold Vaults

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Introduction

The Bank of England is one of the 2 largest gold custodians in the world, the second custodian being the Federal Reserve Bank of New York (FRBNY). From at least as far back as the early 20^th century, the Bank of England has offered gold custody services to its foreign central bank and government customers, enabling them to purchase gold on the London Market and store it in the Bank’s vaults. This central bank gold is referred to as ‘earmarked gold’, and is said to be stored on a ‘set-aside basis’ since individual identifiable gold bars are owned by specific customers. In other words, the gold is allocated. All gold stored in the Bank of England vaults is in the form of Good Delivery gold bars or similar, each weighting about 400 troy ounces. There is probably a small amount of historic gold coinage also stored on behalf of some customers although the Bank does not highlight this. The Bank of England is only a custodian for gold and not for other precious metals.

Location

The Bank of England’s gold vaults are located within the basement levels of its headquarters building, located in the City of London on a site bordered by Threadneedle Street, Princes Street, Lothbury and Bartholomew Lane. The service entrance to the Bank, and the internal yards, is via a secure arched gate on Lothbury, which is at the back of the building on the opposite side to the pedestrian entrance on Threadneedle Street.

Vault History

The current Bank of England building on Threadneedle Street was built between 1924 and 1933 during which time the previous Bank of England building on the site was totally rebuilt. The 1920s/1930s rebuild involved excavating down 15.2 metres to create 3 basement levels to accommodate the vaults and foundations, and adding a 2.44 metre thick reinforced concrete wall around the site below the existing perimeter wall^[1].

Bank of England Archives confirm that in the 1970s there were 6 ‘Triple Control’ gold vaults with a desirable storage capacity of 391,000 gold bars (4,860 tonnes), and a theoretical permissible storage capacity of 465,000 bars (5,780 tonnes)^[2]. Triple control means that access to the vaults is under the control of three separate parts of the Bank, for example, a bullion operations team, an audit team, and a business unit team such as the Bank’s customer banking unit.

The Vaults

While the Bank of England does not provide comprehensive details of the layout, structure, or contents of its gold vaults, nor how much gold is stored and on behalf of which customers, it is still possible to draw together some of the vault details.

According to the Bank of England Museum^[3], as of 2012, the Bank used 8 gold vaults spread over 2 of the basement levels. In March 2013, a Bank of England employee at a LBMA seminar stated that there weree 10 gold vaults, when he said:

“At our premises at Threadneedle Street, London, we have approximately £200 billion worth of gold stored over 10 vaults“^[4]

There are also cash vaults in the basements. The gold vaults and cash vaults are interchangeable depending on space requirements, hence the number of vaults being used to store gold can and does seem to vary. In the vaults, gold bars are stacked on metal framed, wooden-based storage pallets which each hold 1 tonne of gold bars (80 bars) and can be stacked on top of each other. Some vaults store pallets that are stacked 4 high, while at least one vault stacks pallets 6 high. Pallets are moved and stacked within the vaults using powered stacker pedestrian units such as the BT Staxio^[5].

One of the vaults is known within the Bank as the ‘display vault’ or ‘show vault’^[6]. This is the same vault that often appears in Bank of England media photos (with old posters on the vault walls), and is also the vault that was filmed during the visit to the Bank in 2012 by Queen Elizabeth II ^[7]. A Bank of England virtual tour app, available to download from the Apple Store and Google Play, includes a 360 degree tour of the ‘show’ gold vault^[8]. A study by Warren James, based on this virtual tour app, estimated that this ‘display vault’ held about 690 tonnes of gold, in 270 stacks^[9].

Another of the Bank’s vaults was also featured in a documentary video in December 2012 which shows a space in which the pallets are stored 6 high^[10]. The same study by Warren James estimated that this vault (with 6 high pallets) was storing circa 410 tonnes of gold. At the London Bullion Market Association annual conference in Rome in September 2013, the Bank of England reported in a presentation that its gold vault storage arrangements took up 3,000 square metres. This presentation included numerous detailed photos of a 6 high pallet vault and can be seen here^[11]. The same presentation includes photos of the entrance to this vault, which is named vault ‘SV7’.

With 2 of the documented gold vaults together holding up to 1,100 tonnes of gold, this still leaves up to 8 additional gold vaults holdings at least another 3,000 tonnes of gold which the Bank of England does not publicise. Another unknown is whether some of these vaults are exclusively long-term storage vaults. The Bank maintains that its gold vaults are working vaults (meaning that shipments of gold go in and out), as well as long-term storage vaults but there is no breakdown as to whether some vaults are purely for long term storage.

Gold Vault Customers

Customers storing gold bars in the Bank of England vaults include central banks, national governments, national monetary authorities, international financial institutions, and commercial bullion bank members of the LBMA. Central banks storing gold at the Bank of England are charged 3.5 pence per bar per night as a storage cost. This would mean, for example, that a foreign central bank storing 100 tonnes of gold at the Bank of England would be charged approximately £102,200 per year as a storage charge (100 tonnes x 80 bars per tonne x £0.035 per night x 365 days).

International institutions referred to above would include the International Monetary Fund (IMF), and the Bank for International Settlements (BIS). The Bank of England is one of the 4 designated gold depositories of the IMF^[12], and the BIS offers gold safekeeping services to its clients ‘loco London’ at the Bank of England^[13]. The Bank of England does not own its own gold, except for a few display bars. UK gold that is sometimes attributed in the media as belonging to the Bank of England is actually held by the Bank of England on behalf of HM Treasury.

How many Gold Customers?

A 2014 Bank of England publication stated that 72 central banks maintain gold accounts with the Bank^[14]. A March 2011 LBMA presentation said that

“The Bank of England acts as gold custodian for about 100 customers, including central banks and international financial institutions, LBMA members and the UK government.”^[15]

With 72 central bank customers this means that there may be up to 28 LBMA bullion bank members with gold accounts at the Bank. This is realistic given that most of the LBMA’s bullion bank members have been involved at various times in the London gold lending market, and a gold account at the Bank of England would be needed by a commercial bank in order for the commercial bank to take title to the borrowed gold while being the counter-party of the gold lender.

Who are the Gold Customers?

Although the Bank of England does not comment on the identities of its gold account customers, its is possible to source this information directly from the central banks themselves, either in their financial accounts or through their media statements. For in-depth details of which central banks store gold in the Bank of England’s vaults, see BullionStar blog “Central bank gold at the Bank of England”, which identifies at least 34 central banks with gold holdings in the Bank of England vaults.

Some of the ‘large’ gold custody customers are as follows. Germany still holds 438 tonnes of gold at the Bank of England vaults, even after having repatriated over 900 tonnes back to Frankfurt from London in the early 2000s. Austria stores 208 tonnes of gold at the Bank in London, Switzerland stores 224 tonnes, and Belgium stores approximately 200 tonnes at the Bank. The UK’s 310 tonnes are also stored in the Bank’s vaults. The IMF does not report exact gold holdings at each of its depositories however there is probably still at least 600 tonnes of IMF gold in London, since, when the IMF last reported its London gold holdings in 1976, it has 900 tonnes stored in London.

How much gold is in the Bank of England vaults?

Since they are a working set of vaults, it will always be difficult to know how much gold is actually being held in the Bank of England vaults at any given time. However, the Bank does report overall figures once per year in its annual report. In its 2015 annual report, dated Saturday 28th February 2015, the Bank of England stated that it held £130 billion worth of gold in custody. At the previous day’s price of gold, this equates to 5,134 tonnes of gold, or approximately 411,000 Good Delivery bars^[16]. Given that figure of 400,000 bars is used frequently by the Bank and the LBMA when discussing how much gold is stored in the Threadneedle Street vaults, this figure seems to be a favoured one in Bank and LBMA circles, but should be considered a very general ballpark. See BullionStar blog “How many Good Delivery gold bars are in all the London Vaults?….including the Bank of England vaults” for more details.

Data on official sector gold held at the Bank of England vaults, however, should come with a warning, which is that it is impossible to know how much of this vaulted gold is encumbered (on lease or with competing claims against it). This is because there is extremely limited information about central bank gold lending in the London Gold Market, and neither the Bank of England, LBMA bullion banks, or the central bank customers in question will engage in discussion about this very secretive part of the market.

Gold lending by central banks using gold bars stored at the Bank of England also raises the issue of the form in which central bank gold is held at the Bank. Prior to gold lending, all central bank gold was held on an ‘earmarked’ or ‘set-aside basis’. However, with gold lending, when a central bank lends its gold bars to a commercial bullion bank, the bullion bank usually sells those gold bars or transfers them in another way. Likewise, in central bank accounting, the lent gold is still accounted for as belonging to the central bank. However, the central bank merely has a claim to the bullion bank for the same quantity of gold, specified in terms of fine ounces, that the bullion bank is obliged to return to the central bank. The gold bars that the central bank receives back at the end of the lending term are not the same bars that it lent the bullion bank. Therefore, in a gold accounting sense, during a period of gold lending, a central bank will have ‘a gold balance’ at the Bank of England, or in other words, the gold is being accounted for on a fine ounce basis. Since some central banks engage in gold lending in the London market with their entire gold holdings on a long-term or permanent basis, these central banks would rarely if ever have ‘earmarked’ gold holdings.

References and Links

1.^ ‘Bank of England rebuilding 1933’, Engineering Timelines, http://www.engineering-timelines.com/scripts/engineeringItem.asp?id=1170

2.^ Bullion Office File: Storage Charges for the London Gold Market, March – November 1977 http://www.bankofengland.co.uk/CalmView/Record.aspx?src=CalmView.Catalog&id=C52%2f55

3.^ Bank of England Museum http://www.bankofengland.co.uk/education/Pages/museum/visiting/default.aspx

4.^ “A London Vault’s Approach to Weighing Large Gold Bars”, Luke Thorn, Bank of England, LBMA Assaying & Refining Seminar, March 2013, http://www.lbma.org.uk/assets/ThornAR13Trans.pdf

5.^ Toyota, BT Staxio powered stackers http://www.toyota-forklifts.co.uk/EN/Products/powered-stackers/bt-staxio-w-series/Pages/Default.aspx

6.^ “The Bank of England’s Gold Vault Operations”, Speech by Matthew Hunt, Customer Banking Division http://www.lbma.org.uk/assets/Speeches/Hunt%2020130930.pdf

7.^ Queen visit to Bank of England gold vault, The Telegraph, December 2012, http://www.telegraph.co.uk/news/newsvideo/royalfamilyvideo/9742780/Queen-and-Duke-of-Edinburgh-visit-gold-vault-at-Bank-of-England.html

8.^ Bank of England virtual tour app http://www.bankofengland.co.uk/publications/Pages/news/2013/089.aspx

9.^ “Bank of England Vault Floor Layout”, Warren James, Screwtape Files http://screwtapefiles.blogspot.co.uk/2013/07/bank-of-england-vault-floor-layout.html

10.^ Bank of England gold vault, filmed by Brady Haran, featuring Professor Martyn Poliakoff http://www.periodicvideos.com/videos/feature_gold_bullion.htm

11.^ The Bank of England’s gold vault operations, A photographic presentation, Matthew Hunt, Customer Banking Division, September 2013 Bank of England gold vaults

12.^ “The IMF’s Gold Depositories – Part 1, The Legal Background” BullionStar blog https://www.bullionstar.com/blogs/ronan-manly/imfs-four-gold-depositories

13.^ Bank for International Settlements, banking services http://www.bis.org/banking/finserv.htm

14.^ “The Bank of england as a Bank”, Bank of England, Quarterly Bulletin, Q2, 2014 http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q202.pdf

15.^ “The LBMA Good Delivery List, a Primer”, Stewart Murray, LBMA Assaying and Refining Seminar, March 2011 http://www.lbma.org.uk/assets/7_Murray_GDL.pdf

16.^ Bank of England 2015 Annual Report http://www.bankofengland.co.uk/publications/Documents/annualreport/2015/boereport.pdf