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COVID and the Bank of England Gold Surplus

The Bank of England recently reported adding over 240 tons of gold to its custody. It is said that the BoE did this to overcome the uncertainty caused by the Covid-19 pandemic. Gold has been a longstanding guarantor of economic stability as it acts as a hedge against uncertainty.

The Bank of England's gold custody has jumped by 8,009,000 troy ounces since December 2019, as per research reported by Trading Platforms UK. This means that 248 tons were added to its gold custody if we convert it from troy ounces into kilograms.

The research also notes that the BoE’s gold custody has grown from 178,344,000 troy ounces to 180,757,000 troy ounces since 2011.

The current amount of gold held by the BOE is at its highest levels since December 2013, when it stood at 182,278,000 troy ounces. The rise in custody has been constant since 2016 when gold stored at the facility stood at 150,873,000 troy ounces.

It is pertinent to mention here that the BoE doesn’t store gold only for the UK government. In fact, the bank’s vault stores gold for more than 34 countries and as many commercial entities. That is why the gold stored at the BoE vaults might also include purchases made by other countries.

The Bank of England is the custodian of gold for the United Kingdom’s gold reserves and the other central banks. 

The London Bullion Market has been the centre of the gold trade for a long time. It is easier for both central banks and big commercial banks to acquire and store gold in the same place. 

Other countries like Russia, China, India, Brazil and South Africa have also been amassing huge gold reserves. This is being done in part to protect their economies from US bullying.

Those countries are constantly facing pressure from powerful global actors, such as the US, IMF and World Bank, to agree to their diplomatic and geo-political agenda regardless of how it affects them.

Some countries consider this an attack on their sovereignty. But the BoE’s circumstances are entirely different from the countries mentioned here. The main factor contributing to the British central bank’s increasing gold reserves is the coronavirus pandemic.

Some other important factors causing uncertainty were unprecedented fiscal stimulus amid health crises, a shaky monetary policy, and the strict lockdowns' economic consequences. However, all these reasons were the same as everywhere else in the world, and almost every currency was on a path of weakness.

The BoE did not initiate their policy to accumulate gold until early into the pandemic. The data shows that the bank’s gold accumulation saw a decline during the second quarter of 2020. The bank started its gold rush in August when the stock market started to recover. That was also the time when gold prices started to rise. This reinstated confidence of international institutions and investors in gold as the hedge against uncertainty.

The coronavirus wasn’t the only concern for England’s policymakers. 2016’s historical Brexit vote made economic stability in the UK more challenging in years following Brexit.

The UK saw a massive drop in its real per capita income post Brexit. This was another reason for the BoE’s increase in gold reserves following the drop in reserves in 2015.

The BoE’s gold accumulation reflects a global approach towards the international socio-economic scenario as we saw the US-China trade war, Covid-19 pandemic, and an uncertain situation before and after the US presidential elections.

The economy reacts to circumstances like these, and gold can help to hedge against the financial uncertainty.

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