The dizzying rise of gold, punctuated though it might be with stomach-churning dips in price, has moved at such a pace during its 11-year rally that vaults that store the precious stuff are running out of room. Customers willing to hoard gold and pay for the privilege of having a secure facility in which to keep it have led to an expansion in the number of those facilities, and demand shows little sign of slowing.
According to a Bloomberg report, many vaults are at or near capacity, and the businesses that own them—whether dealers or banks or security firms—are responding with alacrity, breaking ground for new facilities or already in the process of building them.
As previously reported by AdvisorOne, Barclays Capital announced earlier this month that it was planning to build a vault in company with Brink’s in London, to be open next year. Brink’s already opened a new vault itself this year and may build another to accommodate soaring demand.
Deutsche Bank and the Perth Mint are among the other entities adding storage for their precious metals. So is Geneva-based Swiss Precious Metals, which has a vault in Singapore that has nearly reached capacity under a fivefold increase in the demand for the safe haven of such valuables in the past year alone.
In August the firm relocated its CEO, Jean-Francois Pages, to Singapore to handle the flood of investors putting their trust in shiny metals. In the Bloomberg report he said, “The European debt crisis and its impact on the solvency of European financial players are driving European customers to find refuge in tangible values like physical gold and other precious metals,” adding that demand “is totally compatible with the current financial and political global turmoil.”
According to the World Gold Council, all the gold that has ever been mined amounted to some 168,300 tons by 2010; that could be crammed into 69-foot cube. But of course it’s never that easy; gold bugs—er, investors—are located all over the globe, and even if they purchase the precious metal through an ETF, the physical product has to be kept somewhere both safe and secure. The council says that by the end of 2010, private investors owned about 31,000 tons of the stuff.
The cost of storing such valuables does not come cheaply, with insurance coverage rising right along with the price of the metal. It can cost an individual 1% or more of the total value of any bullion he or she may have stored under his own name; investors in metals held through ETFs may instead pay around 0.4%. Fees charged by Lloyd’s of London members are assessed according to the value of the metals stored, not the amount of space they take up.
And there is another phenomena reducing available storage: even if a company has room in its vaults, it may have reached capacity on insurance expenses. Insurers will only cover so much.
Savneet Singh, the CEO of New-York based Gold Bullion International, a company that provides wealthy individuals, financial institutions and hedge funds with precious metals storage, said in the Bloomberg report, “Many vaults are hitting the insurance limit as prices of gold have surged and even if space is available, the full replacement insurance may not be available. The smaller customers are already getting squeezed.”