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  • Bullion Vaults Run Out of Space as Gold Rallies: C
    goendeavor.com | Nov 11, 2011 05:56:09
    Deep in the 7.4-acre Singapore FreePort next to Changi International Airport’s runways is the bullion vault of Swiss Precious Metals, behind seven-metric-ton steel doors built to survive a plane crash or earthquake.

    The rooms are almost full after demand rose fivefold in the year since the Geneva-based company opened the facility. The firm plans an extension, and relocated Chief Executive Officer Jean-Francois Pages to Singapore 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 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,” Pages said. Demand “is totally compatible with the current financial and political global turmoil.”

    Barclays Capital is building a new vault, The Brink’s Co. (BCO) and Deutsche Bank AG (DBK) may add more space, and the Perth Mint may expand for the first time since 2003, a sign they expect demand to keep increasing after the 11-year rally during which prices increased sevenfold. Investors in exchange-traded products backed by gold bought 2,236 tons of bullion since 2003, exceeding all except four countries’ official stockpiles.

    Gold climbed to a record $1,921.15 an ounce on Sept. 6. Prices more than doubled since the end of 2007 as stock markets slumped, economies contracted and central banks and governments pumped more than $2 trillion into the global financial system.
    Dollar Index

    The metal rose 27 percent to $1,803.32 this year as the MSCI All-Country World Index of equities retreated 11 percent, led by financial stocks. Treasuries returned 8.5 percent, a Bank of America Corp. index shows. The U.S. Dollar Index, a gauge of the world’s reserve currency against six major trading partners, slumped 10 percent in the past 15 months.

    Gold will exceed $2,000 this year, according to the average estimate of 16 respondents in a Bloomberg survey at the London Bullion Market Association’s conference in Montreal. The metal will peak at $2,268 next year, the survey showed.

    Storage companies are responding. The 112-year-old Perth Mint, which refines more than 8 percent of all supply and is owned by the Western Australian state government, may add a new vault within the next year, according to Treasurer Nigel Moffatt. The mint sells everything from gold coins to 400-ounce (12.4-kilogram) bars.
    Bullion Carrier

    Brink’s, the largest bullion carrier in the U.K., is considering adding more storage after opening a new London vault earlier this year. Barclays, based in London, is building a vault in the city that will open next year, the bank said in a statement last week.

    Deutsche Bank, based in Frankfurt, is considering expanding existing facilities and developing new ones to meet demand, Matthew Keen, a director at the bank, said earlier this month. JPMorgan Chase & Co. (JPM) started a vault at the Singapore FreePort location last year and opened another in the financial district of New York.

    “With gold prices where they are, we encourage people to keep it in safety-deposit boxes at banks or vaults, which gives that sense of security,” said Scott Carter, chief executive officer of Goldline International Inc., a Santa Monica, California-based precious-metals retailer established a half- century ago.
    ETF Trust

    Gold bought for investment accounted for 38 percent of total demand in 2010, compared with about 4 percent a decade before, the World Gold Council estimates. Holdings in gold- backed ETPs are equal to more than nine years of U.S. mine production. The SPDR Gold Trust, the biggest bullion ETP, exceeded the market capitalization of the SPDR S&P 500 ETF Trust in August, beating what had been the industry’s largest exchange-traded fund since 1993.

    The Brink’s vault business is part of the Richmond, Virginia-based company’s value-added global services unit, which accounts for about 35 percent of total revenue, according to Bradley Safalow, chief executive officer of New York-based PAA Research. The shares will rise about 62 percent to $40 in the next 12 months, he estimates.

    The company operates its storage business on long-term contracts that guarantee revenue, Chairman and Chief Executive Officer Michael T. Dan said in a conference call with investors in July. Brink’s benefits when prices appreciate, he said.
    ‘Ultimate Asset Bubble’

    Malca-Amit Global Ltd., owner of two gold vaults at the Singapore FreePort and looking to add another, may see revenue from precious-metals storage in the city state climb by 30 percent next year, said Ariel Kohelet, executive director of Malca-Amit Singapore Pte.

    The surge in demand is a warning to some investors. George Soros called gold “the ultimate asset bubble” in 2010. Soros Fund Management LLC, founded by the 81-year-old billionaire, sold 99 percent of its stake in the SPDR Gold Trust and all shares in the iShares Gold Trust in the first quarter, a U.S. Securities and Exchange Commission filing in May showed.

    “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 AG, which has $2.8 billion in assets, wrote in a report distributed Sept. 15. 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.”

    Warren Buffett, the world’s most successful investor, says the metal has no utility.
    Private Investment

    “They take it out of the ground in South Africa, ship it to the Federal Reserve, where they put it back in the ground,” Buffett said on April 30 at Berkshire Hathaway Inc.’s annual meeting in Omaha, Nebraska. “If you were watching from Mars, you might think it’s a little peculiar.”

    All gold ever mined totaled about 168,300 tons by 2010 and would fit inside a cube measuring about 21 meters (69 feet) in length, 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.

    The gold stored in vaults typically meets the LBMA’s so- called good delivery standard, where bars are of at least 99.5 percent purity and include a serial number, the year of manufacture and the refiner’s assay mark.

    “The days where a secure vault in a basement was sufficient are long gone and in today’s operating environment, the expertise required in order to manage the substantial, and expensive, quantities of bullion are far reaching,” said Orit Eyal-Fibeesh, managing director for Brink’s in the U.K.
    Silver Surges

    Brink’s, the third-biggest provider of vaults in the U.K. behind New York-based JPMorgan and HSBC Holdings Plc (HSBA), is considering building another facility in London, said Eyal- Fibeesh. The company’s clients include banks, trading houses, institutions, individuals, governments and sponsors of ETPs.

    As gold surged 27 percent and silver 31 percent this year, so did the cost of insurance. Fees charged by Lloyd’s of London members are pegged to the value, not volume, of the metals. Individuals preferring to hoard bullion under their own names in private vaults pay about 1 percent or more of the total value a year, compared with about 0.4 percent for investors in metal held through some ETPs.

    Insurers typically set maximum values for the metals they are willing to insure.

    “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,” said Savneet Singh, the CEO of New-York based Gold Bullion International, which offers precious-metals storage to wealthy individuals, hedge funds and financial institutions. “The smaller customers are already getting squeezed.”
    Singapore Vaults

    Swiss Precious Metals, whose Singapore vault will be 80 percent full by December, charges as much as 1 percent of the market value of gold and silver stored, depending on the quantity, Pages said. The charge covers storage, insurance and related documentation, he said. The company has already arranged for more space for expansion.

    If insurance costs rise by more than 50 percent, then the firm may ask for higher fees, according to Pages, who predicts gold may reach $2,500 by the end of the year. Swiss Precious Metals is owned by Geneva-based Palaedino Group SA and Euroasia Investment SA. Euroasia Investment is an investor in the Singapore FreePort through affiliates, according to Pages.

    Lloyd’s of London, which offers so-called specie insurance, declined to provide information on rates or demand. Brink’s declined to elaborate on storage and insurance costs. JPMorgan, which also rents space at the Singapore FreePort for its gold vault, declined to comment.
    Bullion Depository

    Sometimes the secrecy needed at vaults backfires. Ron Paul, a Republican congressman for Texas and three-time presidential candidate who has called for a return to linking the dollar to gold, isn’t sure there’s any metal at the U.S. Bullion Depository at Fort Knox in Kentucky.

    Paul told Bloomberg Businessweek’s June 20 edition that the government “is asking the American people to trust that all the gold is there, while not allowing site visits and not publishing all the data.” Eric M. Thorson, the inspector general of the Treasury, said he has seen and accounted for it all.

    The U.S. has the world’s largest gold reserves, 8,133.5 tons, according to World Gold Council data. The Kentucky vault, opened in 1937, stores more than 4,500 tons at a book value of $42.22 an ounce, according to the U.S. Mint’s website. The facility admits no visitors.

    “Gold is simply a mirror of economic and political failure, of all the uncertainties that make people worry,” said Gerry Schubert, the head of precious metals at Emirates NBD in Dubai, who has traded the metal since 1979. “If you have $50 million, what would you do with that money? You buy gold. Hedge funds, central banks, sovereign funds: all are buying gold.”
  • Central Banks Seen Retaining Gold to Help Manage D
    goendeavor.com | Nov 11, 2011 05:55:54
    Central banks, net buyers of gold for the first time in a generation, are likely to retain their holdings even if they need to raise cash to counter an escalating debt crisis, according to Morgan Stanley.

    “Once they’ve sold, that’s it, and buying back would be extremely expensive,” Peter Richardson, chief metals economist at Morgan Stanley Australia Ltd., said in an interview. “They would rather have the backing of a rising asset within their reserve portfolios than use it to reduce debt.”

    Gold rallied to a record this week as rising government debt burdens and weakening currencies boosted demand for a haven. Central banks are the biggest gold holders, and Thailand, South Korea, Kazakhstan, Mexico and Russia added to reserves this year. The precious metal is the “currency of the world” amid the debt crisis, economist Dennis Gartman wrote Aug. 19.

    “Under conditions of austerity we’re going to see a further deterioration of debt,” said Richardson, who has studied metals markets for 20 years. “Rising risk argues in favor of holding on to their gold reserves rather than selling them because they’ve only got one shot at selling.”

    Immediate-delivery gold, which has rallied 30 percent this year, touched an all-time high of $1,913.50 per ounce yesterday and was at $1,846.07 by 12:02 p.m. in London. The metal may reach $2,000 by the end of the year, according to the median forecast in a Bloomberg survey of 13 traders and analysts at a conference in Kovalam in South India on Aug. 20.
    Currency Credibility

    “The European central banks won’t sell their gold because while it may be a means to raise cash, it definitely won’t be enough to settle their debts,” said Duan Shihua, head of corporate services at Haitong Futures Co., China’s largest brokerage by registered capital. “Besides, none of the central banks believe in the currencies of other countries.”

    In 2010, central banks became net buyers for the first time in two decades, adding 87 metric tons in purchases by countries including Bolivia and Mauritius, according to World Gold Council data. In the second quarter of 2011, central bank and government-institution buying rose almost fivefold to 69.4 tons, taking the first-half total to 192.3 tons, the council said last week. The banks will remain net buyers this year, it said.

    Central banks have been “active buyers” of gold in recent months, Edel Tully, an analyst at UBS AG, wrote in a note to clients on Aug. 8. The banks should also buy platinum as they boost gold holdings amid concern about the global economy, Citigroup Inc. said in a report the same day.
    Credit-Rating Downgrades

    The debt crisis in Europe that started in Greece has hobbled economic growth and prompted downgrades of the credit ratings of Greece, Portugal and Ireland. Still, the euro has strengthened against the currencies of 14 of 16 trading partners this year as the European Central Bank bought government bonds.

    German Chancellor Angela Merkel yesterday rejected a call by Labor Minister Ursula von der Leyen for states to put up gold as collateral for emergency loans. That disagreement may underscore risks over a second Greek aid package.

    In August 2009, central banks in Europe agreed to a third five-year cap on gold sales. The European Central Bank and 18 others agreed to sell no more than a combined 400 tons a year through September 2014. Germany, Italy, France, the Netherlands, the European Central Bank, Portugal, Spain and Austria are among the top 20 holders, according to council data.
    IMF Sales

    “Notwithstanding the worst sovereign-debt crisis, particularly in Europe, where there are very large, concentrated holdings of gold, the central-bank agreement has been striking by the fact the only people who have been selling has been the IMF,” said Richardson, referring to the Washington-based International Monetary Fund.

    The IMF sold 403.3 tons between October 2009 and December 2010 as part of a plan to shore up its finances and lend at reduced rates to low-income countries. More than half of that was acquired by central banks, according to the fund.

    The Bank of Korea, which purchased 25 tons over a one-month period from June to July, said “holding gold helps reduce investment risks in terms of reserve management,” according to a statement earlier this month after the move was disclosed.
  • Gold Coins, Bullion Sales Go `Gangbusters\\\' as A
    goendeavor.com | Nov 11, 2011 05:55:40
    While TV camera crews staked out American International Group Inc.\\\'s Wall Street headquarters following its takeover by the U.S. government, Jules Karp was quietly trading gold coins in ``unbelievable\\\'\\\' numbers from his basement dealership across the street.

    Karp, 61, has traded physical gold, including one-ounce Canadian Maple Leafs, American Eagles and South African Krugerrands, since 1974. Demand has ``hit a crescendo,\\\'\\\' he said yesterday while an assistant prepared the special packages used to send gold coins to a growing list of mail-order customers.

    Investors are being driven to the relative safety of gold as global equities plummet following the federal takeover of AIG, the largest U.S. insurer by assets, and the bankruptcy of Lehman Brothers Holdings Inc., once the fourth-largest U.S. securities firm. Amid the fallout yesterday, Goldman Sachs Group Inc. and Morgan Stanley, the biggest U.S. securities firms, plunged the most ever in New York trading.

    ``People are panicking right now,\\\'\\\' said Karp, who also sources coins for the clients of Wall Street\\\'s largest banks. ``They\\\'re afraid for their money.\\\'\\\'

    The interest in bullion appears widespread. Gold sales to new clients at Blanchard & Co., the largest U.S. precious-metal retailer, have jumped more than sixfold in the past three days as investors responded to the financial turmoil.

    ``People are looking for answers,\\\'\\\' said David Beahm, a vice president at New Orleans-based Blanchard. ``People want to protect their wealth and their assets, and gold is the best way for them to do that.\\\'\\\'

    Gold Skyrockets

    The purchases by retail investors mirrored trading yesterday on the New York Mercantile Exchange\\\'s Comex division, where gold gained the most in almost nine years. Suppliers of coins and bullion have been struggling to keep pace with the surge in demand from investors.

    ``We\\\'re having a hard time\\\'\\\' making enough coins, Michael White, a spokesman for the U.S. Mint in Washington, said yesterday in an interview. ``There\\\'s very high demand across the market for gold.\\\'\\\'

    Gold futures for December delivery gained $70, or 9 percent, to $850.50 an ounce yesterday on the Comex, the biggest percentage gain for a most-active contract since September 1999.

    Gold producers\\\' shares also surged. Barrick Gold Corp., the world\\\'s largest gold producer, jumped 14 percent in Toronto trading, while Newmont Mining Corp., the biggest U.S. producer, climbed 9.4 percent in New York, the most in 10 months.

    Hard Assets

    Depositors fearing bank collapses are turning cash into hard assets, said Richard Smith, president of Phoenix-based Onlygold.com, an online bullion dealership. Many don\\\'t want their savings in any one bank to exceed the $100,000 threshold guaranteed by the Federal Deposit Insurance Corp., he said.

    ``I\\\'ve been selling gold for eight years and I\\\'ve never seen anything like what I\\\'ve seen in the last seven business days,\\\'\\\' Smith said yesterday in a telephone interview. ``It\\\'s just been gangbusters for us.\\\'\\\'

    Since 2003, the value of gold purchases jumped almost fourfold, representing the strongest source of growth in demand, the World Gold Council said on its Web site. Investment attracted net inflows of about $15 billion last year, the industry body said.

    ``There is no doubt that identifiable investment demand in gold has increased considerably in recent years,\\\'\\\' the World Gold Council said.

    Record in March

    The precious metal reached a record $1,033.90 an ounce in March after the Federal Reserve slashed interest rates, sending the dollar to an all-time low against the euro. Gold subsequently dropped as the dollar strengthened and commodity indexes liquidated their positions. Newmont Chief Executive Officer Richard T. O\\\'Brien said last month the price will probably top its March record in the next year.

    Gold wasn\\\'t the only place investors were putting their money this week. While about $3.6 trillion of market value was erased from global stocks, yields on three-month Treasury bills sank to a 54-year low as investors sought the safety of government debt.

    ``You don\\\'t want to go to bed on Friday evening and come back on Monday and have your investments worth zero,\\\'\\\' Blanchard\\\'s Beahm said. ``I\\\'m not sure you can get any more economic turmoil than what you\\\'ve seen in the last 72 hours. It\\\'s perfect for gold investors.\\\'\\\'