Banks are charging more to store gold after a surge in demand for precious metals has left London, the centre of the global bullion market, short of vault space.
Almost all of the major bullion-dealing banks have raised fees since March this year, in some cases more than doubling the rates they charge for vaulting gold, according to clients of the banks and people familiar with the situation.
The development is a further sign of how demand for assets which are seen as safe is straining the financial system. Bank of New York Mellon announced last week it would start charging fees on large deposits after a sudden influx of cash.
Investors from sophisticated hedge funds to wealthy individuals are turning to gold in an attempt to protect their wealth from the turmoil in financial markets. On Tuesday, the price of bullion surged to a nominal record of $1,778.29 a troy ounce. It has risen 550 per cent in the past decade.
HSBC and JPMorgan along with security companies Brink’s and Via Mat operate commercial vaults in London. The Bank of England has a large vault that is primarily geared to providing services for central banks. Other bullion dealers such as Barclays Capital, Deutsche Bank and UBS sublet vault space.
“People are used to storage being a non-issue,” said Jonathan Spall, director of precious metals sales at Barclays Capital. “But demand for physical gold means that vault space is now at a premium.”
Much of the increased demand comes from exchange-traded funds. Investors in ETFs this week boosted their collective gold holdings to about 2,300 tonnes, more than most central banks.
HSBC’s London vault holds the gold of the SPDR Gold Trust, the largest gold ETF, while JPMorgan is the custodian for the largest silver ETF, the iShares Silver Trust.
“The issue seems to be that London is very close to being out of space,” said a banker at a company that has recently raised rates.
Banks charge varying rates for vaulting gold, with large clients such as central banks and hedge funds paying less than retail investors. Fees are typically between 0.03 per cent and 0.15 per cent of the value of the gold held per year.
The move to raise vaulting fees began several months ago, when some banks and vaulting companies raised rates. That triggered a chain reaction, as some of those subletting vault space followed suit. Others have recently moved from charging a fee based on the weight of the gold to one determined by its value.
In response to the growing strain on the London vaulting system, both Barclays Capital and Deutsche Bank are planning to build new vaults.