Industrial and Commercial Bank of China (ICBC), the world’s largest bank with over $3 trillion in assets, has purchased Barclays Bank’s precious metals storage business in London. The purchase includes Barclays’ secret London gold vault, with a capacity of 2000 metric tons. At a little over 64.3 million troy ounces, the capacity of the vault is over $82.3 billion of gold at a price of $1,280 an ounce.
The deal, which is expected to close in July, will make ICBC the first Chinese bank with a LBMA-certified precious metal vaulting service, joining six others (plus the Bank of England) in this exclusive club.
Super Secret and Super Secure
The vault, which was built at great expense by Barclays in 2012, is reported to be one of the largest in Europe, The Guardian ticks off just a few of the many security features of this state of the art precious metals storage facility:
- A front door that can withstand a direct hit by a rocket-propelled grenade launcher (RPG);
- An electrified roof:
- Underground barriers to prevent tunneling attempts;
- A fingerprint identification system that senses blood flow through the finger (to prevent severed fingers being used to gain entry.)
Who’s Getting The Deal?
Barclays is concluding efforts announced in January to get out of the physical precious metals business. Due to the bear market in gold (until this year,) it was expected that it would be difficult to find a buyer for their giant gold vault, and they would need to price it to sell.
ICBC’s deal with Deutsch Bank to take over its London vault lease was announced before Barclays put theirs on the block, so they were thought to be out of the market. But when the deal with DB fell through, Barclays found their customer. Of course, the actually selling price will likely never be disclosed, but any loss Barclays took on the deal could be written off.
How Many Vaults?
While almost all press reports on the sale of the Barclays vault state that there are six private vaults owned by LBMA members, plus the Bank of England, the LBMA itself counts seven, plus the BoE:
- Barclays (clearing member)
- HSBC (clearing member)
- JP Morgan (clearing member)
- G4S Cash Solutions Ltd (UK)
- Malca Amit
- Loomis (Via Mat) International Ltd (UK)
The three vault owners designated as “clearing members” are responsible for physically weighing and examining any gold bar that is being brought into the London market, to ensure it meets LBMA standards. ICBC will likely take on this role as part of the vaulting services it is acquiring from Barclays. It is assumed that the Bank of China and China Construction Bank will be moving their bullion to the ICBC vaults, as soon as the sale is consummated.
Building Influence in London’s Bullion Market
The Barclays deal is only the latest chapter in ICBC’s moves to grow its influence in the London bullion market. Last week, it joined the new London Gold Fix as its 13th member. It is actually the third Chinese bank to sit on the committee. In March, China Construction Bank became the first Chinese bank to join the gold price setting mechanism, followed by the Bank of China. These three banks give China control of nearly 25% of the mechanism used to set the world’s major daily benchmark for gold.
The other nine “market makers” for the London Gold Price are:
- Goldman Sachs International,
- HSBC Bank USA NA,
- JP Morgan,
- Morgan Stanley,
- Societe Generale,
- Standard Chartered,
- The Bank of Nova Scotia – ScotiaMocatta,
- The Toronto Dominion Bank, and
Who Rents Vault Space?
Investors with large positions in physical precious metals are a logical customer for vaulting services. Miners and jewelers are also regular clients. Even smaller sovereign nations will hold part of their reserves in a London vault, to have it at-hand for leasing. However, it is the explosion of physically-backed ETFs that has driven a large part of the demand for precious metals vault storage. By acquiring their own London gold vault, ICBC is better situated to earn the business of large investors and ETFs.
All Going According To Plan
This move by ICBC is jut the latest in Beijing’s strategy to gain more influence in the global gold market. (All big banks in China, including the three on the London Gold Price committee, are partially or totally controlled by the government.)
As the leading consumer AND leading producer of gold on the planet, can you blame them?
The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product