Yamashita's treasure
Wednesday, 25 November 2009 10:00am
US$1,170.30 per troy ounce. This is how much gold - the commodity, the physical metal - is currently fetching in international markets. Chances are it would go higher and it is now creating problems.
Back in March this year -- when the equity markets were just beginning to take flight - I penned a piece on this space titled ‘Go for Gold' (www.financialstandard.com.au/news/view/25322/) concluding that the global financial crisis and the measures implemented to end it have made gold the perfect hedge. "Up when the economy is fixed. Up when the economy is not fixed. Is there a better hedge?"
On that morning, the yellow metal was priced at US$953.7 a troy ounce. This translates into a 22.7 per cent profit to buyers as at last night. Those who bought bullions, bars and coins exactly a year ago are doing even better - the value of their holdings are now up 44.4 per cent.
The problem is where to stash all this gold. This becomes more so during this period when investors and speculators are taking delivery of the physical metal itself. Futures, forward or options contracts, or Exchange Traded Fund (ETF) or stock certificates are easy to fold and store under the bed, in a cookie jar or in a safety deposit box. But how do you store tonnes of gold?
You pay a warehouse or a vault to store and guard them. Ahh…yes! That's it! But wait. With so many wanting to hold gold bullions, bars, ingots and coins, warehouses and vaults are overloaded and running out of space.
The Wall Street Journal reports that HSBC - owner of one of the biggest vaults in the US - are sending retail investors away to make room for its institutional clients.
Gold Silver Vault - a depository in Idaho - had taken in some of HSBC's clients and this reportedly has contributed to a 500 per cent increase in new metal stored in its vault in the third quarter alone.
You want more? Reports also show that 1,000 new accounts are opened every month at Goldstar for the purchase of gold coins. In 2006 only around 100 new accounts were opened each month.
Anxiety over the value of the US dollar, future inflation and the US government debt suggest that demand for gold would continue to increase in the coming months. This would send prices even higher but at the same time increase the storage problem.
The natural consequence would be higher storage fees. Demand and supply, remember?
Gold has come a long way from being an unloved asset. In the late 1990s, world central banks were even asked - nay, begged - to stop unloading their gold holdings to prevent the price from collapsing. Central banks at the time deemed gold a non-appreciating, non-interest bearing asset. A decade later and everyone can't seem to have enough of the stuff.
Central banks may now revive the hunt for Yamashita's treasure?
Benjamin Ong
This story was found at: http://www.financialstandard.com.au/news/view/27398
Printed: Thursday, 9 September 2010 7:34pm