Why is the UK exporting so much gold?

Recent exports of UK gold warrant a second look. What is going on, and why is the UK exporting so much of its gold? 

The chart looks like a hockey stick as it depicts the highest historic number of UK precious metal export is £1 billion but the last two months of 2019 saw a tenfold increase in the volume of the precious metal as it exported £12 billion of gold out of UK.

You’ve probably seen similar charts like this one where the sudden increase in some variable is seen.  A sudden increase in the demand for a less known product after a catalyst event will show you a chart like this but the depiction of the UK gold export chart in this way is a bit odd. Britain is known for its gold purchases and its role in the standardization, distribution and storing of the bullion. Before November, the average gold exports of UK was £126 million whereas, last two month of 2019 saw the gold export of around £12 billion which is the amount equal to the Jamaican annual GDP.

 

Gold is such a valuable commodity that significant imports and exports can affect trade balances. 

The post Brexit referendum debates opened up the topic of the trade-related issues the UK may face after Brexit. This chart showed that while the UK is getting out of the EU soon, their trade with non-EU nations is also on the rise. Liz Truss, the UK International Trade Secretary, recently boasted about the record trade surplus that the UK recently achieved, while declaring it a “record-breaking year for UK exports”.

However, that is not the complete truth. When you remove gold exports from the equation, British export data shows that exports only grew by 2.9%. In fact, if gold imports and exports are excluded from the data then the ratio of exports to national income will be lower than last year. 

All the above discussion raises the two important questions. First, why do we need to exclude gold from trade volume figures? And secondly, why did gold exports skyrocket at the end of 2019. The answer to our first question is that there are two systems used to determine international trade statistics. The first is the Balance of Payment or BOP, which is used when we record the change in ownership of commodities from one country to another irrespective of the physical location of that said commodity. The second is the International Merchandise Trade Statistics or IMTS, which are drafted by the UN to record trade numbers. Under this standard, the physical movement of commodities across borders is taken into the account irrespective of the change in ownership.

London is the global trade hub for the gold trade and the gold trade volume is always large irrespective of the standard used to record the trade volume. This large number easily fudges the trade figure of the UK. That is why the ONS (Office of National Statistics) said they would exclude gold from the BOP trade statistics. But it seems like they forgot to exclude gold from 2019. As gold has always traded in and out of London [according to both BOP and IMTS standards] this would only make sense if the ONS didn’t include it. 

We have come down to our last point of discussion: Why did gold exports jump up in later 2019. The BOP related explanation to this would be the balance sheet change from London’s gold storage to an American Investment Bank, where the gold would be kept in London but under different ownership. Of course, there could be another reason, but this is less likely. Irrespecitvely, Britain’s mystery trade has caused quite a stir in the news.