Gold isn't just something that rappers use to bling-up their dentures — it's immensely important to the financial markets. But how can these cold chunks of metal be so vital to you and the financial security of our economy?
A valuable metal, gold is what traders invest in to shore-up their money when markets are volatile as its price tends to remain steady – mostly because it is one of the lowest risk assets available. It is also traded, providing a means to exchange funds in a hard and universal currency.
Despite the fact that the UK owns less gold than some other countries (for example, Switzerland) the London market is disproportionately important compared to the amount of gold owned. One reason is because of something called the London Good Delivery. This is a benchmark standard for large gold (or silver) bars and ensures little or no variation between one bar and the next — allowing easy trading and market liquidity.
But when you buy or sell gold, you don't necessarily have to lug a wheelbarrow full of bullion around. In fact, for many transactions, the gold doesn't even move from the shelf. Each bar has a unique serial number etched on it. In most cases, when you buy or sell gold you are transferring the registration of that bar, rather than the metal itself.
So that brings us to the question: where is London's gold? Unfortunately, for security reasons, many of the locations are understandably kept secret. However, we can reveal two of them.
The first of is the Bank of England — the central bank of the United Kingdom and that which helps to maintain monetary stability. Gold is an important element (pun intended) of how it runs its affairs and the bank has been intrinsically linked with the bullion market since its creation in 1694.
The vaults below Threadneedle Street hold about £156bn worth of bullion — about three quarters of London's 7,500 tonnes of gold (although very little of it actually belongs to the bank). The gold in the vault is made up of the country's reserves and bars belonging to overseas central banks and the London Bullion Market Association. The underground vault wasn't always used to house precious metals — during the second world war it was used as an air-raid shelter, and also became the bank's canteen. If you visit the Bank of England Museum, you can hold a gold bar worth over £400,000 (although they won't let you take it home with you).
The remainder of London's gold is kept in six commercial vaults across the city. One of the two largest gold vaults in the City is rumoured to be below JP Morgan's offices on Victoria Embankment.
The building was constructed in 1883 and was previously the home of the City of London School. JP Morgan kept the location of its vault a closely-guarded secret, until the address of the facility was unwittingly revealed in 2011 on a receipt for $3.2m worth of gold. Schoolboy error (again, pun intended).
Closer inspections of Google Streetview images from June 2012 revealed a large, reinforced delivery entrance with Brinks security vans parked outside the building, plus a number of other security measures designed to mitigate the risk of a robbery.
It has even been suggested that the Waterloo and City Line is used at weekends to transport gold between JP Morgan and the Bank of England.
The second of the two largest commercial gold vaults is operated by HSBC and is said to hold about $70bn of the shiny stuff. Once more, the location is a closely-guarded secret — so much so that when a crew from financial news provider CNBC was taken there, they had to surrender their phones and any GPS devices, before being transported there in a car with blacked-out windows.
One of the other commercial vaults is owned by Brinks. You might remember the name from the now infamous Brinks-Mat robbery in 1983 which has since been made in to a TV film starring Sean Bean. During the heist, robbers targeted a warehouse at Heathrow airport expecting from the inside information they were given, to find £3m in cash. Much to their surprise, what they actually discovered was £23m worth of very heavy and hard to flog gold bars. Still, much of the gold has never been recovered.
Despite the robbery taking place over 30 years ago, Brinks' twitchiness about the location of their vault is understandable. Although the location is not in the public domain, the London Bullion Market Association visited the gold store in 2011 and gave this description of the facilities, which they say is somewhere 'within the M25'.
Barclays Capital also has built an above-ground vault in recent years and unsurprisingly, they also won’t let on where they are. It did however invite the Sunday Times to the facility, and its journalist described the rather frightening security features. These include an electrified roof to stop people breaking in from above, a front door strong enough to withstand a direct hit from a rocket-propelled grenade, anti-ramming bollards that can halt a lorry travelling at 55mph and concrete plinths to prevent people tunnelling in. With so much concrete and steel, pilings had to be drilled 100 foot in to the ground to support the sheer weight of it. However, despite all of these features, the Sunday Times says the building has been designed to resemble others in the area.
The other precious metal vaults in London holding gold belong to Via-mat and Deutsche Bank — the latter built recently in another top secret location.
With so much activity going on in the capital, London really is at the centre of a gold rush — even if most of it is traded on paper and computer screens.
