Wikinvest Wire

Soaring demand for precious metals storage

Tuesday, November 24, 2009

In another sign of the times, now that big investors are beating down the doors of HSBC asking them to store their growing quantities of gold bullion as part of the 2009 mad dash to shore up investment portfolios with something that is not paper and has no counterparty risk, the little guy who had his bars and coins stored there is getting the boot.

This Wall Street Journal story($) has the details:

HSBC has told retail clients to remove their small holdings from its fortress beneath its tower on New York City's Fifth Avenue. The bank has decided retail customers aren't profitable enough and is demanding those clients remove their gold to make room for more lucrative institutional customers.

An HSBC spokeswoman said the firm doesn't comment on its vault due to "security concerns."

HSBC's decision has created a logistical nightmare for both the investors and the security teams in charge of relocating the gold, silver and platinum to new vaults across the country. Many of those vaults are also feeling pressure from the surge in demand for space from clients that have stocked up on metal.
The movement of gold from HSBC has created a stir not only among the bank's clients, but also among owners of warehouses and vaults around the country.

"I have never seen any relocation like this," says Jonathan Potts, managing director of FideliTrade, the parent company of the Delaware Depository Service Co., which has two warehouses in Wilmington. FideliTrade's two vaults have been filling up at an unprecedented pace, in part because it is taking in metal that has been ejected by HSBC.
It would be fascinating to learn more of the details here - who and what's getting booted.

You can easily fit a half million dollars worth of gold in a large safe deposit box so, it's not clear just what kind of customer HSBC is asking to leave.

Are there that many individuals with millions of dollars in physical gold?

Apparently retirement companies that hold bullion for their customers (a very small, but growing segment of the market) are being affected and, as described below, it's not just gold, but silver, and that explains a lot.
Dealing with the fallout from HSBC's decision has become a full-time job for David Norris, executive vice president of GoldStar Trust Co., a Canyon, Texas-based retirement-account trustee, which organizes metal storage for its clients.

Mr. Norris says HSBC told GoldStar in July to immediately cease sending coins for storage. GoldStar, which had sent clients' holdings to HSBC for at least 15 years, is now figuring out how to get the coins out of the HSBC vault and down to the Delaware facility. "I can jump up and down and scream all day long about how much I don't like it. But it's their business decision," Mr. Norris says.

Moving the metal is like "a big military operation," he says. Precious metals are typically shipped by insured carrier services or armored trucking companies. Carriers sometimes ship the metals in plain boxes so as not to attract attention. Trucks are guarded by a team of two or three armed personnel.

Bradley Beyer, a GoldStar customer in Kewaunee, Wis., has 50 100-ounce silver bars stored with HSBC waiting to be moved. "My only concern is that the bars will be moved safely," he says.
Beyer's 50 silver bars weigh almost 300 pounds but are worth less than one 100 oz. gold bar.

My guess is that HSBC is pushing a lot of silver out of its vaults to make room for gold...

They are telling customers to remove their metal or prepare for it to be delivered to the address of record at the owners' expense, so, be on the lookout for armored trucks in your neighborhood that leave packages on doorsteps if nobody is home.

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fish said...

You can easily fit a half million dollars worth of gold in a large safe deposit box...

Yeah....but don't put it there!

Anonymous said...

28% capital gains tax on collectibles and state income tax on gold gains, as well. The IRS believes people who buy physical gold (jewelry,coins, ingets) as well as Gold ETF's, are not investors, but collectors. Consequently, the preferrential 15% Long Term Capital Gains tax rate is not applicable to any form of gold purchases. Plus, in states like California and Oregon, you will pay for any gain as regular income on your state income tax return to a tune of 11% (upper bracket).

So, your gain is really 39% the Government's gain, assuming Federal tax rates do not increase. Everybody knows President Obama intends to raise all taxes and especially Capital Gains Taxes to 20%-25% in 2011. Gold has appreciated 47% since Jan 1, 2009. Your current cut: 47%-39%= 12%. Once again, no gain without pain.

Remember one famous piece of financial advice: "You ONLY get to keep what the government lets you keep (from your wages or other income)".

Anonymous said...

Uh... Three important letters for anyone who owns gold - I.R.A.

Anonymous said...

I was a customer of HSBC. I can only assume that they bailed on smaller investors like me because they anticipate a much more lucrative business with commercial operations.

It actually started about three months ago.

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