As the Comex gold has recently gotten depleted at an unprecedented pace with total gold holdings plunging to 2006 levels, not to mention JPM’s gold inventories plunging to record lowswith just over 1 tonne of physical eligible gold left, one question has emerged and is so far unanswered: where has this gold moved to? For the answer, look east. This is the topic of GoldCore’s recent paper titled appropriately enough, “As the crisis deepens, gold flows east.” It is also the topic of our long-running series showing gross Chinese gold imports from Hong Kong. But of course, the real story here is that the “West” floods itself with paper representations of gold (leading to such market perversions and shortage-based dislocation as the longest stretch of negative gold GOFO rates in history), the “East” is seeking to fill up all those gold vaults opened up in the past two years with as much gold as possible.
Recall from September 2011, when Bloomberg looked at the Singapore gold vaulting scramble:
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.
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.
Yet unlike the US, where vaults are getting mothballed and innocent, non-manipulative firms likeJPM are looking at exiting the physical commodities business entirely, the Chinese rush to fill precious metals vaults continues at a fervent pace. Just three weeks ago, “UBS AG, Switzerland’s biggest bank, started storing gold for wealth-management clients at a facility in Singapore, citing interest from investors in the region even after the metal slumped into a bear market.”
The leased vault in the Singapore FreePort is available for clients in the city-state and Hong Kong, according to Peter Kok, regional market manager for wealth management in Singapore and Malaysia. While bullion is heading for the first annual drop in 13 years, client interest persists, Kok said.
UBS joins Deutsche Bank AG and JPMorgan Chase & Co. in offering storage services in Asia, where China may surpass India as the largest user this year. Bullion fell to a 34-month low on June 28 in a rout that’s erased $66 billion from the value of investor holdings. Goldman Sachs Group Inc. forecasts further declines as the U.S. Federal Reserve may withdraw stimulus.
Almost as if to the Chinese, actual possession of physical and the verified presence of the monetary alternative is more important than binary reps and warranties which simply enable the collateral-based fractional reserve model.
But while the collapse in Comex gold holdings is well-documented and generally understood, so far silver has remained isolated from the physical volatility affecting the gold market.
A look at represented silver Comex holdings shows that unlike gold, which has recently plunged in both price and inventory, silver has only seen its price slide while Comex silver is near all time highs.
On the surface this makes no sense: silver, like gold, is largely subject to the same underlying supply/demand dynamics (whether legal or not) where on the margin it trades merely as a precious metal, and those misguided pundits out there who claim that the drop in gold Comex holdings is purely a function of ETF reallocation, are surprisingly mum when it comes to explaining Comex silver which has not followed the move of gold in physical holdings and is in fact near all time holding highs despite an even more aggressive plunge in its price.
Alternatively if indeed gold’s inventory plunge was driven by the permissive nature of Singapore vaults as willing recipients for all the gold that has departed the assorted Comex system vaults, and thus are merely a physical receptacle to absorb the pent up Chinese “golden” demand, it would explain why this has not happened to silver. At least not yet.
That may change very soon because as Bloomberg reports, silver is the new gold when it comes to vaulting in Singapore, and thus China’s precious metal warehousing ambitions.
A silver vault that can hold 200 metric tons opens in Singapore this week to cater for increasing demand for physical precious metals among Asia’s wealthy even as the commodity leads declines this year.
The new facility is 30 percent booked at the opening, said Joshua Rotbart, precious-metals general manager at owner Malca-Amit Global Ltd. The storage will add to the firm’s five vaults at the Singapore FreePort, which are fully reserved for gold, he said in an interview. The repository can hold $128 million of silver at today’s prices. Gold is about 67 times more expensive.
While silver has lost 34 percent in 2013 on concern the U.S. Federal Reserve will taper stimulus, holdings in exchange-traded products have held steady. The number of high-net-worth individuals in the Asia-Pacific region expanded 9.4 percent last year, according to Cap Gemini SA (CAP) and Royal Bank of Canada. Deutsche Bank AG, UBS (UBSN) AG and JPMorgan Chase & Co. are among banks operating metals storage in Singapore.
“Our existing vaults at the FreePort are highly secured and the rate is too expensive to store silver there,” said Rotbart, who declined to say where the new facility is sited. “We need to find a solution, and we also see a strong demand.”
About 50 percent of silver is used in industry, compared with 10 percent for gold, data from the Silver Institute and World Gold Council show. Industrial applications for silver include photography and electronics.
Malca-Amit’s vaults in Hong Kong and Singapore have a precious-metals capacity of 1,000 tons each, and the company also has facilities in New York, Zurich, Geneva, London and Bangkok. The company leases vault space to banks, and stores items for its own customers.
The Singapore government has been promoting the country as a bullion-trading hub, removing a 7 percent sales tax on investment-grade precious metals in 2012. About 2 percent of world gold demand flows through Singapore, and the government aims to increase that to as much as 15 percent.
So as physical gold fever shifts to silver, now that commercial US gold vaults are being emptied at a record pace, and the country is being bled of all its commercial PM holdings (with the product shifting east), will silver follow gold’s fate and see Comex silver vaults start being emptied out slowly at first, then fast?
Keep an eye on the daily Comex silver update (link) for the answer. If China and thus Singapore is indeed intent on “warehousing” all the loose precious metals in the world, this is where the action will be in the coming months.
Finally, for those curious about the underlying metal flows (from west to east), here are some additional insights from GoldCore