High prices fail to dent gold demand in India

Section:

By Patrick Hosking
The Times, London
Friday, January 28, 2005
http://business.timesonline.co.uk/article/0,,8209-1460595,00.html

One of the largest hoards of gold ever gathered outside
a central bank has been accumulated at a secret address
in London over the past few months.

Gold bars with a value of 1.55 billion are understood
to have been collected in a single vault in an anonymous
building owned by HSBC. If melted into a single block,
the 212 tonnes of solid gold would take up 11 cubic
metres -- roughly the size of a Transit Van.

But the gold is so dense that it would require 104 Transit
Vans to cart it away. The quantity of metal is 21 times the
amount stolen in the Brinks-Mat robbery in 1983.

Ironically, the reason for the accumulation of this hoard is
the popularity of a new gold investment product that does
away with the expense, risk, and hassle of taking delivery
of the metal.

People and institutions in Britain, the United States, and
Australia have been queueing to buy gold-backed,
exchange-traded funds (ETF) -- listed shares tradeable on
the stock exchange but backed by actual gold.

Gold Bullion Securities (GBS), the British and Australian
ETF that listed in London in December 2003, has 60
tonnes of gold in the vault -- a 30 percent increase in the
past four months. StreetTRACKS, its sister ETF in the
United States, which was launched in November, is now
backed by 152 tonnes of gold deposited in the same vault.

Both ETFs are supported by the World Gold Council, the
marketing body for the goldmining industry.

Simon Village, joint managing director of GBS, said:
"Exchange-traded gold has very quickly become an
important investment vehicle for investors seeking
exposure to the metal or seeking to diversify their
holdings in other assets."

In the past 12 months, 7.5 percent of the world's
goldmine production had gone into ETF products,
Mr Village said.

Barclays yesterday launched a rival gold-backed ETF
on Wall Street using Bank of Nova Scotia as custodian.

Gold-backed ETFs closely track the physical gold
price, less a small commission for administration and
gold storage costs. Additional securities are created or
old ones redeemed so that supply matches demand.

Most of the demand has come from institutional
investors. Strong publicity for the streetTRACKS
product in the US has boosted demand, as has the
slide in the gold price during the past few weeks,
which some investors see as a buying opportunity.

The gold stockpile in London is said to be secure.
But it is not clear what would happen in the unlikely
event that the hoard was stolen.

GBS does not insure the gold and said it is HSBC's
responsibility to keep it safe. Investors might have to
rely on a claim against the bank in the unlikely event
of a robbery, GBS said.

HSBC is under no obligation to insure the gold. But
the bank said it would be responsible for any gold lost
through its negligence, fraud, or willful deceit.

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