We begin this week’s recap with 3 assumptions we think are reasonable.
You construct a vault to safely store your valuables.
Additionally, if you don’t have any valuables, or are not expecting to
acquire any in the near future, you don’t build a vault.
And finally, there is a strong correlation between the strength and
security features built into a vault and the value of the items it is
designed to hold.
Fort Knox
Fort Knox is arguably the most famous gold vault in the world. The
facility was built to store gold confiscated from U.S. citizens by President
Roosevelt during the Great Depression via Executive Order 6102 in April 1933.
The presidential order forbade “…the hoarding of gold coins, gold bullion,
and gold certificates within the continental United States.” Simply
put, it made holding gold by any person, business or institution, except for
the U.S. government, illegal.
The order required gold owners to surrender all but a small portion of
their gold to the Federal Reserve by May 1, 1933, in exchange for US$20.67
per ounce. Shortly thereafter the government devalued the dollar by
increasing the price of gold for international transactions to US$35.
This was a pretty shabby bit of business, but we won’t go down that road
today.
More relevant to our topic is that the U.S. government collected so much gold
from this operation that it necessitated the construction of a fairly large
vault to store it all. Currently, the U.S. Treasury reports that Fort
Knox holds 4,578 tonnes of official U.S. gold reserves, worth roughly US$200
billion.
As the name implies, Fort Knox is literally a fortress. Its walls are made
of granite with a blast-proof door weighing 22 tons. Each door has
separate combinations that have to be entered by several different depository
staff. Then there are an assortment of alarms, video cameras, razor
wire, electric fences, and mine fields.
Just in case this isn’t enough of a deterrent, it was built within a U.S.
Army base, protected by special U.S. Mint Police supported by unmarked Apache
helicopter gunships, tanks, armored personnel carriers, and about 30,000
soldiers.
It is somewhat curious that construction of Fort Knox didn’t begin until
1936, three years after the gold confiscation. Instead, it was
completed, rather hastily, in December of the same year. It’s curious
because one would think they should have given the safe storage idea some thought
beforehand!
Nevertheless, it highlights the point that large gold flows and large
secure vaults are birds of a feather.
With this in mind, let’s fast forward to the present and some recent
stories featured on our sites News Corner about curious happenings
in the present day gold market.
If You Build It, It Will Come
The following headlines have appeared in just the past two months:
“Deutsche Bank Opens 200 Tonne
Gold Storage Facility in Singapore.”
“UBS Starts Gold-Vault Service
in Singapore Amid Bullion Rout.”
“ANZ Bank Opens 50 Tonne Gold
Vault in Singapore.”
“Silver Vault for 200 Tons
Starts in Singapore as Wealthy Buy”
There are also these relatively recent stories from 2012:
“Hong Kong Completes Largest
Gold Vault in Asia.”
“Barclays’ new vault opens for
gold”
The Hong Kong vault was built by its current owners, Malca-Amit Global,
and has a gold capacity of 1,000 tonnes. They specialize in the storage and
transport of valuables of all kinds. To put this private vault’s size
into perspective, it has the capacity to house 22% of the gold reportedly
held in Fort Knox.
Malca-Amit also has five gold vaults in The Singapore Freeport (TSF).
Natural Le Coultre S.A. (NLC), a company established in 1859 in Geneva
Switzerland, built TSF. Like Malca-Amit, NLC is one of the largest
specialists for storage, packing, and shipping valuable items in the world.
The Singapore Freeport is located adjacent to a runway at the Changi
International Airport. The facility is 270,000 square feet in size and used
to store valuables such as art, wine, jewelry, and precious metals. Some
refer to the facility as Singapore’s Fort Knox.
TSF has become such an attraction that there is a second phase planned
that will increase the storage capacity to 538,000 square feet and
coincidentally Malca-Amit has indicated that they are considering adding more
vault space.
If you are a regular follower of the gold market, or a repeat offender in
reading our weekly recaps, you are undoubtedly familiar with the western
gold flowing east narrative. The recent construction of these massive
vaults in major Asian financial centers is just one more piece of evidence in
support of this notion.
It is intriguing to note as well that major western banks are leasing
sizeable chunks of this new vault space to service wealthy Asian clients who
appear to be amassing gold and other valuables at an accelerating rate.
We thought it would be instructive to tally up some of this reported new
vault space.
As mentioned earlier, Malca-Amit’s Hong Kong vault has a capacity of 1,000
tonnes. In addition, their 5 vaults in Singapore are able to store a
combined total of 1,000 tonnes.
With a total of 2,000 tonnes, these two locations alone could hold 44% of
the Fort Knox gold. Or, they could hold all of the 1,300 tonnes of gold
that has allegedly disappeared from the Bank of England vaults plus all of
the gold (i.e. 650 tonnes) that has been liquidated from gold ETFs since
2012.
This seems like a lot of space, and it is, yet Malca-Amit plans to expand
and construct additional vault space in Beijing, Shanghai, and Bangkok.
However, it’s not just Asia that’s seeing increased demand for private vault
gold storage.
As indicated in one of the articles above, Barclays has recently completed
a new vault in London. It is the first new vault built, in arguably the
world’s most important gold trading hub, in five years. In addition,
Deutsche Bank is reported to have a new vault under construction in the city
while Brink’s is considering building one as well.
This reflects the fact that private parties in the west are also
increasing their physical gold holdings substantially. Like their
eastern counterparts, they are seeking a private storage solution where they
can enjoy the security of having gold allocated in their name and segregated
in its own separate and secure space.
So What Gives?
This brief review of vault construction and expansion in just the last 2
years demonstrates a strong demand for physical gold storage across the
globe. It also suggests that Asian and western gold buyers alike are
changing preference and choosing to take delivery and ownership of physical
gold over holding paper claims (e.g. futures and ETF’s).
As we suggested earlier, you don’t build a vault unless you have
something, or are planning to have something, tangible to put in it.
We have commented at length over the last several weeks that Asia is
accumulating gold at an extraordinary pace and that much of this gold is
originating in the west. In general, Asian cultures are big on long-term
planning and thus the current wave of gold vault construction may be ‘tipping
their cap’.
It is also evident that private gold ownership is on the rise in the west.
The building and leasing of vaults on a large scale is just one more piece of
evidence for this historic and unfolding trend.
And that’s it for now…
I hope you have enjoyed this week’s recap. As always, we include our
Comparative Analysis Table below for your review. It tracks many
important metrics critical to evaluating gold mining companies.
(Click the image to enlarge)
Also, check out the News Corner on our website where we compile and
summarize each day’s best news stories related to the gold market, gold
mining and the share markets.
Regards,
RJ Wilcox
Jeremy@goldminersreport.com
www.goldminersreport.com
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