The Multi-Billion-Dollar Mystery Of The Great British Gold Sale

Authored (via Tweet-thread) by Ed Conway, Economics Editor at Sky News,

This is a story about a chart. A pretty astonishing chart.

A chart that has all sorts of consequences, including misleading ministers, distorting our view on the nature of the UK economy and creating a genuine mystery about what's going on in the bowels of the UK economy.

Here's the chart in question: exports of gold from the UK...

For the vast majority of history they were near zero (average monthly level apt £126m). Then, suddenly, in the last two months of last year, gold exports were catapulted higher.

It's a staggering chart.

Just to put that spike into context, £12bn (what those two months of gold exports add up to) is the total annual output of a country like Jamaica. It is more than we typically export, over a two month period, to ANY single country, including US or Germany (our biggest trading partners).

It has serious consequences. Since comparable records began in 1998, there hasn't been a single month where the UK was a net goods exporter. We've always had a deficit. In December, thanks to the £12bn gold exports, Britain recorded its first monthly trade surplus on record...

There's nothing new about gold distorting UK trade figures. You may recall a short Sky News film I made about this some years ago.

Since then The Office for National Statistics (ONS) has started trying to strip gold out of the figures. Indeed the gold chart above is a new series they've just published.

However ONS are bound by international regulations to include gold in the headline numbers. That massively distorts them. After all, the UK is the world hub for gold trading. Any movement/change of ownership of gold bars counts as imports/exports even though it's hardly what anyone would consider an "export."

You might've thought all of that would mean our politicians would think twice before boasting about those dodgy headline trade figures. Not a bit of it. This week, Liz Truss, MP for South West Norfolk, and UK Trade Secretary, tweeted this about them:

Every bullet point in her tweet is wrong if you strip out gold exports:

  • UK biz exported £674bn of goods & services (not £689)

  • A 2.9% increase on 2018 (lowest since 2016; not 5.0%)

  • We don't know how much exports to non-EU countries rose; ONS hasn't worked them out ex-gold

It's not like exports are doing badly. They're at 30.4% of GDP once you strip out gold. That's one of the highest levels in decades, though it is down on last year. Perhaps that's why Liz Truss used the dodgy headline numbers which look far better because of that £12bn of gold exports.

But none of that solves the real mystery here.

Why did gold exports spike so dramatically?

One thesis doing the rounds is that it has something to do with this story: Poland repatriating some of the gold that's been in the Bank of England's vaults since WW2...

But it's not that, because central bank gold movements (monetary gold) aren't included in these gold statistics. Anyway all that Polish gold still wouldn't account for all the gold that changed hands in Nov/Dec. It's equivalent to Barbados's GDP, not Jamaica's.

As far as I can divine here's the answer.

A US bank with London gold vaults shifted some of that gold from being "unallocated" to being "allocated".

Effectively it moved it on its balance sheet.

The gold stayed in the same vault but technically it shifted from UK ownership to US.

In other words, a couple of clicks in a bank's spreadsheet caused the biggest fluctuation in Britain's trade figures in modern history. At least that's the most plausible explanation.

Though it raises further questions: Why? Is the bank in trouble? And who owns the gold anyway? And is it just a coincidence that all of this occurred as The Fed was forced to unleash unprecedented liquidity to support the repo market...

Short answer: we may never know. No other sector is as cloak-and-dagger as gold. What we do know is that crazy stuff is happening beneath Britain's national statistics and it's time we started paying attention to it. More on this in my London Times column here...

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A shout out too to Jonathan Athow and others at The Office for National Statistics who have been attempting to adjust for gold in the trade figs for years now. And they're pretty much there now. Hopefully govt ministers will soon start quoting the right figs! Good blog on this here.