The golden business of gold vaults
Gold’s popularity has created growing demand for storage. Gold vaults are spreading from Switzerland to Singapore, as investors want their holdings closer to home.
Gold prices are down from their 2011 peak, but still more than quadruple the value a decade ago. Investors skittish about currency values or other uncertainty have flocked to gold in recent years, meaning demand for high-security gold storage is soaring. The growing hunger for gold is driving a shift in where it’s stored, with growth happening outside established centers in Zurich, New York and London. This is proving to be good news for high-security transport and storage companies.
A beneficiary of these trends is housed in a simple brick building in Wilmington, Del. On a fairly busy road near an auto parts store and pharmacy, the Delaware Depository Service Company’s offices are as unremarkable as its facade.
It’s not until one reaches the vault that it becomes evident that billions of dollars in gold from investors around the world are stored there. As one would expect, visiting the vault is quite a production. Six bulletproof doors lead into the vault. For added security, each must close before the next can open, creating a sort of airlock effect. Metal detectors sensitive enough to detect dental fillings keep watch over the treasure.
Inside, there’s gold in every form: coins, plates and bars of all sizes. The 70-pound bars make a satisfying clink when stacked. The metal is everywhere, but it’s not strewn about like in a dragon’s lair. It feels more like a Costco, but with shelves piled high with bullion instead of family-size groceries.
The company says its holdings have grown tenfold in the last decade. The Delaware location is a factor.
“People choose Delaware Depository because we are not in New York City,” says managing director Jon Potts. “Especially since 9/11, that’s become a more important issue.”
Fear of terror attacks and natural disasters aren’t the only reason investors are choosing other cities for storage. Many vaults in established gold storage areas are full. It’s less a problem of physical space than of insurance coverage. Insurers will only cover a certain dollar amount per location. The growth in gold’s price is pushing policies to their limits, meaning new facilities have to open elsewhere.
Investors tend to want their gold stored close to home. That means much of the growth in gold storage is happening in Asia.
“The economic development of Asia is just creating wealth at a sometimes astonishing rate,” says Richard Sylla, an economics professor at New York University’s Stern School of Business.
Investors aren’t the only customers for gold storage. With more wealthy Asians able to afford luxury goods, jewelry makers now store more of their raw material in the region. Keeping gold there cuts transport costs and allows products to come to market more quickly.
Malca-Amit is one of the companies catering to Asia’s new rich. It transports and protects valuables for clients worldwide, including billions in gold. It has a new lockup in Hong Kong and is expanding its facility in Singapore.
“As far as we can see, this is going to be a growing business,” says Hong Kong-based CEO Nigel Paxman. “We see the demand for gold increasing, so the requirements for vaults will increase.”
He spoke during a visit to New York, where growing business has Malca-Amit’s offices overflowing until it can get more office space.
New Asian wealth isn’t the only driver of storage growth in new locations. At its core, a precious metal investment is a bet on political and economic instability. Many gold investors expect the worst, so they value diversity in storing their bullion.
“The best way to do that is to locate your gold in different geographic locations and different political systems,” says James Turk, founder of the popular online marketplace GoldMoney.
Turk’s firm just started storage in Singapore, a country with ambitions as a gold hub. He says clients put $16 million in assets there in less than four weeks.
kai Ryssdal: At the close in New York today, an ounce of gold would have cost you $1,675 and change. It's been an up and down kinda ride for the shiny yellow stuff the past couple of months.
But over the past decade, the price of gold has more than quadrupled. Investors large and small have been buying bullion -- the actual metal -- which leaves them with the problem of where to put it. Demand for gold storage is soaring, as Marketplace's Mark Garrison explains.
Mark Garrison: By design, there’s nothing unusual about the brick building in Wilmington, Del., that sits near an auto parts outlet and a pharmacy. Inside, the Delaware Depository Service Company looks like any old office. Until you reach the vault with gold inside worth billions.
The huge bulletproof doors unlock and creak open. There are six of them. Each must close before the next can open, so it takes a few minutes to get in. Finally, the dramatic vault door is locked behind you and you’re surrounded by gold.
Stroll around and you’ll see gold in every form: coins, plates and bars of all sizes. The 70 pounders make a satisfying clink when stacked. There’s gold all over the place, but it’s not strewn about like in a dragon’s lair. Think Costco, but shelves stacked with bullion instead of family-size groceries. Managing director Jon Potts says holdings have grown tenfold in the last decade. Location is a factor.
Jon Potts: People choose Delaware Depository because we are not in New York City, especially since 9/11 that’s become a more important issue.
Vaults in traditional hubs like New York and Switzerland are filling up. Insurers will only cover a certain amount per location. So the rise in gold’s price means new facilities have to open elsewhere. Also, demand from Asian investors and jewelry makers is exploding, and they want their gold close to home.
Richard Sylla: The economic development of Asia is just creating wealth at a sometimes astonishing rate.
Richard Sylla is an NYU economics professor. Malca-Amit is one of the companies catering to Asia’s new rich. It transports and protects valuables for clients worldwide, including billions in gold. It has a new lockup in Hong Kong and is expanding in Singapore.
Nigel Paxman: We see the demand for gold increasing, so the requirements for vaults will increase.
Nigel Paxman is the Hong Kong-based CEO. I met him in New York, where growing business has Malca-Amit’s offices overflowing. Staffers will soon move to a larger space. It’s not just Asian wealth driving growth in new locations. At its core, a precious metal investment is a bet on political and economic instability, which means heavy gold investors prepare for the worst.
Paxman: Now instead of having it all in one bank vault in Europe or in the USA, they want to spread the risk, spread the risk politically, spread the risk from physical point of view.
Expecting more growth in the high-security business of storing gold, seems like a safe bet. I'm Mark Garrison, for Marketplace.