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Chinese bank buys London gold vault from Barclays

The Bank of England's underground gold vaults. Photo: Alamy

China's ICBC Standard Bank said on Monday that it is buying Barclays' London precious metals vault, giving the Chinese bank the capacity to store gold worth more than US$80 billion in the secret location.

The vault is one of the largest in Europe, with a capacity to hold 2,000 tons of gold, silver, platinum and palladium. It has been operational since 2012.

The move makes parent ICBC, the world's biggest bank by assets, the first Chinese lender to own a vault in London and extends its influence in precious metals from pricing to storage.

The vault gives ICBC a high profile platform in the precious metals market. It also makes it easier for the bank to sells its services to western-based clients given that it now has a location to store metals that is closer to them.

With China the largest consumer of many metals, the country's banks have increasingly bid to own or help run the infrastructure in these markets.

China accounts for more than a quarter of global gold demand, but trading in the metal was until recently largely run out of western banks and in markets such as London and New York.

Vaults are particularly important to trading precious metals because they have fewer industrial uses than the likes of copper or lead and are held mainly as a store of value. The constant trading in and out of positions, coupled with the sheer value of large quantities of the metals, mean that it is best to hold them in a vault. That is particularly so for gold because of the importance of exchange-traded funds in the sector, most of which need to sit on large quantities of physical gold to back up the investment they sell and who are required by regulators to store it with banks.

For ICBC Standard Bank, owning a vault gives an extra reason for clients to use their services while also bringing in a steady revenue from the fees holding the metals bring.

ICBC Standard Bank said on Monday that it has signed an agreement to buy the vaulting business and transfer the associated contracts, subject to consent. The deal is expected to complete in July.

ICBC Standard Bank specializes in commodities, fixed income, currencies and equities and was formed in February 2015 when ICBC bought a 60 percent stake in Standard Bank's London-based global markets business.

Neither ICBC Standard Bank nor Barclays disclosed the financial terms of the deal.

Barclays said in January that it intended to exit from precious metals and moved the business into its non-core unit, which includes all the business it wants to sell or close.

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 $73 billion of toxic and otherwise unwanted assets.

Barclays' modern vault holds precious metals for pension funds, central banks, sovereign wealth funds and other investors. Most 'over-the-counter' gold and silver trading is cleared through the London market, and clearing banks provide services for clients to settle their gold and silver trades, and ultimately have to have access to reserves of physical metal.

Mark Buncombe, ICBC Standard Bank's head of commodities, said that the deal is part of its plan to become one of the largest Chinese banks in the precious metals market.

ICBC Standard Bank said last week that it had joined the London clearing system for gold, silver, platinum and palladium, the first bank to be admitted to the group since 2005.

London Precious Metals Clearing Ltd (LPMCL) operates a central electronic metal clearing hub, with deals between parties throughout the world settled and cleared in London. Other members of LPMCL are Barclays, HSBC, JP Morgan, the Bank of Nova Scotia and UBS.

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