A nation’s gold has a subtly dramatic quality. It is mostly hidden in temperature-controlled rooms beneath cities, piled on wooden pallets that appear almost too commonplace for what they are carrying. For many years, nobody gave the actual locations of the bars much thought. New York held the gold of Frankfurt. In London and Manhattan, the Dutch retained theirs. Austria followed suit. It was no longer a question because of the postwar consensus.
That agreement is eroding. gradually at first, then suddenly. Between 2013 and 2017, the Bundesbank repatriated hundreds of tonnes from the New York Fed and the Banque de France, initiating the modern shift more than ten years ago. It appeared to be a domestic political move at the time, a reaction to some dubious politicians and German tabloids. With the benefit of what transpired after 2022, it now reads more like a subdued preface.
The turning point was the G7’s decision to freeze Russia’s foreign exchange reserves following the invasion of Ukraine. It was intended as a penalty against Moscow. Central bankers in Warsaw, Budapest, Vienna, and Ankara heard a different message: a phone call can deactivate any reserve held under another person’s jurisdiction. Unsaid but understood, that statement has changed reserve managers’ perceptions of what constitutes “safe.” They now feel that ownership and custody are two different things.
The most vocal about it has been Poland. For years, Adam Glapinski, the head of Poland’s National Bank, has been publicly stacking gold and discussing it on national television in a manner that would have embarrassed previous generations of central bankers. Polish reserves currently contain about 28% gold, which is significantly more than the previous comfortable targets. Month after month, China continues to add in amounts big enough to influence the market but modest enough to stay out of the news. The buying list, which includes countries like Turkey, India, and the Czech Republic, reads like a manual for countries that want to stop relying on other people’s vaults for their financial stability.
The texture of the French move last year was different. Few central bankers would have been interested in the logistical challenge of physically transporting gold across the Atlantic, which is why Paris did not do so. Rather, the Banque de France discreetly arranged a swap, selling its remaining bars that were kept at the New York Fed and substituting them with contemporary, compliant bullion in Paris. At current prices, the transaction reportedly generated gains of about €12.8 billion. Even though the techniques have become more covert, the symmetry would have been appreciated by Charles de Gaulle, who famously sent a warship to retrieve French gold from New York in 1965.
It’s difficult to ignore how much the language has evolved. In a world of bonds and currencies, reserve managers used to discuss gold almost apologetically, as though it were a sentimental relic. They now refer to it as insurance. as impartiality. as the one resource that a hostile government—or even a friendly one having a rough week—cannot use as a political tool. The term “sovereignty premium” has found its way into OMFIF reports and central banking conferences, encapsulating the reality that nations are paying in foregone yield for the mere privilege of possessing something that no one else can turn off.
The fact that the trend is coinciding with record gold prices makes it truly intriguing rather than merely nostalgic. It is not a value play to purchase gold at $5,000 per ounce. This trade is based on convictions. Because the alternative, which is to sit on dollar-denominated assets whose security depends on the goodwill of foreign legislators, has begun to feel uncomfortably exposed, central banks are paying the price. What happens over the next ten years will determine whether or not that assessment is prudent. Whether the dollar’s reserve status is actually deteriorating or just being put to the test is still up for debate. In any case, the bullion is in motion.
You wouldn’t believe that anything significant has changed beneath the cobblestones of Paris’s historic Banque de France building on Rue Croix-des-Petits-Champs. The architecture hasn’t changed. The doormen haven’t changed. However, the trust calculation between Washington and the central banks of Europe has subtly changed from what it was five years ago. This time, the gold is remaining at home.
