9 June 2017
Negative interest rates and the populist uprising that spurred the UK to vote for Brexit and Americans to elect Trump has helped reignite a rush into physical safe haven assets like gold and silver, which however has led to a shortage of safe venues where to store the precious metals (unlike bitcoin, gold actually has a physical dimension). And now companies that operate storage facilities for precious metals and other valuables are ramping up their capacity to help cash in on the soaring demand for storage facilities.
Two firms told Bloomberg they’re planning to open vaults in Europe capable of holding more than 100 million euros ($112 million) in gold, offering customers lower costs than exchange-traded products and protection from rising prices.
As we reported last year, demand for vaults and other safe storage spaces among Swiss, German and Japanese buyers surged when one after another central adopted negative interest rates. Many older investors, worried their deposits might soon be taxed, opted to hoard money under the mattress – exactly what central bankers like Kuroda hoped wouldn’t happen.
“I was just dealing with a customer here in Germany who got charged negative interest rates on his bank account,” Daniel Marburger, the CEO of CoinInvest.com, said by email from Frankfurt. The client decided to buy gold and silver with some of his cash.
“That is definitely a driving factor and will lead to more sales and also more storage clients.”
In addition to deflation, investors are also worried about, you guessed it, runaway inflation, which would crush the value of fixed income portfolios.
“Inflation is a key concern for many of our clients,” said Ross Norman, chief executive officer of bullion dealer Sharps Pixley Ltd., which operates a gold vault within walking distance of Buckingham Palace. “A safe-haven asset isn’t just about what you buy—it’s also about where you keep it.”
One such European gold dealer, CoinInvest, is in negotiations over the construction of a 100 square-meter (1,076 square-foot) vault that would hold more than 100 million euros of the precious metal. The safe will weigh 82 metric tons, with the door alone tipping the scales at 1.5 tons. Users of the largest online platform for physical gold trading, BullionVault.com, added about 3 tons of the metal in the 12 months through May, bringing their combined holdings to almost 38 tons, worth $1.5 billion at current prices. The company holds the gold in vaults in Zurich, London, New York, Singapore and Toronto, said Paul Tustain, one of the company’s founders, Bloomberg reported.
Meanwhile, gold in storage at the Bank of England which operates one of the largest commercial vaults, climbed about 6% since the start of 2016 to 5,067 tons in February. The central bank holds gold for the UK Treasury, other central banks and private firms. One company seeking to capitalize on this boom is INTL FCStone, which started a platform to allow investors with gold in vaults to trade with one another, i.e. a gold barter service. Since starting in February, it linked 1,500 locations with more than a hundred customers active in the $170 billion professional gold market. More than 10 tons of gold has traded.
“I’ve been in the gold market 30 years, and suddenly, I’ve got people asking to be on the platform I’ve never even heard of,” said Barry Canham, who heads the company’s precious metals division, in an interview from London.
“They’re coming out of the woodwork.”
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