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Banks set new store on building gold vaults
By Javier Blas
Friday, June 11, 2010
Some of the world's biggest banks and security companies are building vaults to store gold bars and coins worth tens of billions of dollars, cashing in on resurgent demand and record prices.
The growing interest in gold among investors worried about the global economy and Europe's sovereign debt crisis has led to a shortage of long-term storage space.
Bankers said that vaulting had become highly profitable. Rising bullion prices translate into higher storage fees, which are usually calculated as a percentage of the gold price. Gold prices this week rose to a nominal record of $1,251.20 a troy ounce, up 14.5 per cent since January. On Friday bullion traded at $1,226.
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"Physical gold is being sought more than ever and that is causing all sorts of strains," said Peter Hambro, chairman of Petropavlovsk, the gold miner.
Much of the increased demand comes from exchange-traded funds. The world's largest, the SPDR Gold Trust, was on Friday holding a record 42 million ounces of gold worth $51.5 billion at current prices.
While some banks said they had space, others said their vaults were nearly full. Several said they were building or planning new vaults. JPMorgan recently opened a new gold vault in Singapore and Via Mat International, the Swiss-based security company, has just opened a silver safe warehouse in west London. Deutsche Bank is mulling a new vault, bankers said.
Frank Ziegler, head of precious metals at BayernLB in Germany, said its vault was full. "We are discussing increasing the size. We are just at the planning phase," he said. Roger Jones, global head of commodities at Barclays Capital in London, said the bank was "actively looking at the precious metal vaulting business."
While the traditional image of a bank vault is a basement deep underground, modern vaults are purpose-built warehouses, above ground and surrounded by high security. The trend to build new vaults reverses the dismantling in the early 1990s of the elaborate -- and expensive -- infrastructure of vaults put in place during the last gold boom of the late 1970s.
Philip Klapwijk of GFMS, the precious metals consultancy, said the move to build vaults reflected the "new nature" of the gold market. Investors hoping to benefit from a rising gold price and who are driving demand want long-term storage. Jewellery makers deposit gold for short periods.
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