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JPMorgan Chase & Co
HSBC Holdings PLC
Deep in the Singapore FreePort—a collection of secure storage facilities in a duty-free zone covering 7.4 acres next to Changi Airport—sits the bullion vault of Swiss Precious Metals. The gold there is protected by seven-metric-ton steel doors built to withstand a plane crash or an earthquake. Open only a year, the vault is almost full, and demand for available space is high.
Swiss Precious plans an extension to the vault and relocated Chief Executive Officer Jean-François Pages to Singapore from its Geneva headquarters last month to cope with the surge of investors willing to pay as much as 1 percent of the value of their holdings each year to keep them secure.
The price of an ounce of gold rose 50 percent, to $1,921, in the 12 months through Sept. 6. Storage companies are responding to investors’ demand for the metal. The 112-year-old Perth Mint, which refines more than 8 percent of all supply and is owned by the Western Australia state government, may add a new vault within the next year, according to Treasurer Nigel Moffatt. Barclays Capital (BCS) said on Sept. 15 it is building a vault in London that will open in 2012. Last year, JPMorgan Chase (JPM) opened a vault at the Singapore FreePort and another in the financial district of New York. Brink’s (BCO), which transports more bullion than any other company in the U.K., is considering adding more storage after opening a London vault earlier this year. “The days where a secure vault in a basement was sufficient are long gone,” says Orit Eyal-Fibeesh, managing director for Brink’s in the U.K.
All the gold ever mined totaled about 166,600 tons by 2010 and would fit inside a cube measuring about 69 feet on a side, according to the World Gold Council. Private investment in the metal reached about 31,100 tons by the end of last year, according to the council. One big source of demand has come from exchange-traded funds such as SPDR Gold Trust. The fund owns 1,252 tons of gold, held at HSBC (HBC). Investors in ETFs and similar products backed by gold have bought 2,236 tons of bullion since 2003, an amount that exceeds all except four countries’ official stockpiles. “If you have $50 million, what would you do with that money?” says Gerry Schubert, head of precious metals at Emirates NBD Bank in Dubai. “You buy gold. Hedge funds, central banks, sovereign funds; all are buying gold.”
The surge in demand for bullion is a warning to some investors. On Sept. 22-23 the price of an ounce of gold fell $125.55, or 7 percent, even amid concerns the European debt crisis is worsening. On Sept. 26 the price dipped below $1,600 an ounce. “We are now in the final, overheated phase of gold’s protracted bull market,” Chris Eibl, a partner at Zug (Switzerland)-based Tiberius Asset Management, wrote in a Sept. 15 report. Gold “is already so overbought in the wake of panic selling of bank stocks that a calming of the European financial markets could well trigger a tactical pullback by about $200 to $300.” After the latest drop, he remains cautious. While there might be a “technical bounce back,” he says, “we don’t yet see a reason” to buy.
The bottom line: Vaults have filled as gold’s price soared. Several banks are adding new storage space to meet demand.