Barclays Sells Its Multi-Billion Dollar Gold Business to China

image: The disclosed location of the Barclays Sutton, London branch. Where the vault is is anyone’s guess.

Barclays, the renowned British banking and multinational financial services firm, can trace its beginnings in London all the way back to 1690. During that era, as it is today, the city was bustling with culture. It was a city “startling for its wealth and poverty.” It was also the period when a third of the magnificent capital had to be rebuilt due to the Great Fire of 1666. What better time to open a bank – when investment in new infrastructure was essential?

Barclays actually began as a goldsmith bank. In other words, the foundation of its initial capital existed in gold and other precious metals. The megabank grew to its present sophisticated financial stature principally by acquisition through the centuries.

Fast forward to 2016 – more precisely, to just the other day. Barclay has peremptorily cut loose its three hundred and twenty-six-year old precious metals operation. It’s selling its two-thousand-metric-ton-capacity precious metals vault, location undisclosed,  to the Chinese. At gold’s current price, this vault can store up to ninety billion dollars’ worth of the yellow metal.

The planning for this move has been going on at least since January of this year. Barclays wants to focus on its core business and, as the company’s CEO views it, gold no longer fits that bill:

“Barclays Chief Executive Officer Jes Staley said in January that the bank was assessing ‘various options’ to exit its precious metals business while vowing to speed up disposals from the bank’s non-core unit, which houses 51 billion pounds ($73 billion) of toxic and otherwise unwanted assets.”

To a history buff caught up in the nostalgia of Barclay’s goldsmith days, these must seem like harsh words. But business, as they say, is business; and one country’s “toxic and otherwise unwanted assets” represent another country’s glorious entrée into the London gold market – the world’s largest center for over-the-counter transactions. According to Bloomberg, about five trillion dollars in gold deals are cleared there annually.

The actual purchaser is China’s ICBC Standard Bank, formed last year when China’s biggest bank, Industrial and Commercial Bank of China Ltd., bought a controlling interest in Standard Bank’s global markets business.  In a statement clarifying ICBC Standard Bank’s strategy, head of commodities Mark Buncombe states:

“This enables us to better execute on our strategy to become one of the largest Chinese banks in the precious metals market….The acquisition of a precious metals vault allows us to expand our services in clearing and processing.”

It is precisely this clearing and processing activity that Barclays is exiting, some might even say fleeing. Ten banks – including Barclays, JPMorgan Chase & Co. and Deutsche Bank AG – have recently been under fire for manipulating gold and silver prices.

At the same time China has made it clear it will no longer be left out in a London fog when it comes to trading gold. Since 2010 its gold imports have soared over seven hundred percent, and in 2013 China surpassed even India to become the world’s biggest consumer of gold.

Back in April, ICBC Standard Bank was reclassified as a spot market-making member of the London Bullion Market Association (LBMA). It’s safe to say, its price of admission was the same price the bank paid for the Barclays vault.

In recent weeks, investors both big and small are selling paper and buying gold. Now that London and China, in a joint effort, are making it easier for them to make that move, we’ll certainly want to make sure we have enough physical gold in our own portfolios, particularly our retirement accounts, while the getting’s good.