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Who has been taking all that gold out of London, and why?

Section: Daily Dispatches

The Multibillion Mystery of the Great Gold Sale

By Ed Conway
The Times, London
Friday, February 14, 2020

Every so often you encounter a chart that takes your breath away. This week I saw just such a graph and I'm still struggling to get my head round it.

It depicts something which on the face of it sounds mundane -- exports of gold from the UK -- and it looks like a hockey stick.

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You've probably seen a hockey-stick chart before. There's the one Al Gore put up on the big screen in "An Inconvenient Truth" showing temperatures hovering at about the same level for century after century before shooting up in recent decades. Or the one of GDP going back to the dark ages: for most of history we subsisted on meagre earnings until the industrial revolution came along and catapulted GDP into the stratosphere.

The one this week has much the same shape. Not much of anything for month after month from 1998 when it begins until October 2019. Sure, there were occasional months when the amount of gold leaving British hands would hit a few hundred million pounds. Once or twice it ticks over a billion. But nothing like what occurs in November and December last year: in those months it skyrockets at a rate that doesn't make any sense.

Until then, the monthly average of gold exports was L126 million. Then in November they leapt to L4 billion. In December they doubled to L8 billion.

To put it in context, that's more, in those two months, than we typically export to any single country in the world. It is more than the annual GDP of Jamaica.

Britain does not mine any significant quantity of gold yet we are the world's hub for the trade in physical bullion. This is something of an accident of history, in much the same way as we are also the world's centre for the trade in fine wine, though we produce very little of the stuff ourselves. Yet gold bullion is so valuable that every time it changes hands it massively distorts the trade figures.

Consider: Britain has not achieved a goods trade surplus, which is where we export more goods than we import, in any single month since comparable records began more than two decades ago. Yet in December that astonishing leap in gold exports meant that the headline figures published this week showed Britain achieving its first goods trade surplus in modern times.

That this was almost entirely down to a mysterious movement of gold bars was seemingly lost on Liz Truss, the international trade secretary, who promptly issued a press release hailing a "record-breaking year for UK exports."

Well, yes, but only if you include those dodgy gold figures. Exclude them and Britain's exports are not growing by 5 percent, as she proclaimed, but by 2.9 percent -- the weakest rate since 2015. Exclude them and actually, far from hitting a new high, exports as a percentage of national income fell last year.

Still, none of this answers the most intriguing question: Why did gold exports soar at the end of last year?

Was it down to Brexit, with traders switching out of gold in the run-up to Brexit day? Was it to do with the election? Was it central banks repatriating gold or investment banks shifting their portfolios from UK-domiciled funds to EU ones?

We still don't know. I have spoken to statisticians, to gold analysts and economists, to traders and industry experts. None of them have the foggiest idea what is going on.

One analyst took a look at the chart and spluttered a four-letter word. “That's crazy,” he said. “Must be a mistake.” Another person pointed to the fact that Poland flew back about L4 billion worth of gold from the UK last year, before remembering that this happened before December and, oh, these kinds of things don't count as official exports anyway.

The most plausible explanation I've heard is that this was simply an accounting change: one of London's leading gold custodians, an American investment bank, shifted some of the gold from one column of its accounts to another. The gold didn't leave the country; someone simply fiddled with a spreadsheet.

Even so, that raises further questions: Is that bank in trouble? Why do it now? Who ordered it: the bank holding the gold or the gold's owners? If the latter, then who owns so much gold that they could single-handedly distort this country's trade figures and surface in Britain's national accounts?

We may never know the answer because there are few sectors in the City as cloak-and-dagger as the gold business. What we do know is that there is a lot of gold in London -- more, probably, than in any other city in the world. The total amount in storage is going up rather than down.

On the one hand this is encouraging: Brexit has not made Britain any less attractive a destination for foreign investors. On the other, that hockey stick chart is a reminder. Britain is a complex, sophisticated economy. It is a great trading nation doing business with all corners of the world. Yet in the end, all those statistics can be overshadowed by our other line of business: being a great place for rich people to stash their stuff, whether that's financial investments, bottles of wine, or bars of gold.


Ed Conway is economics editor of Sky News.

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