China Plans Massive 1,500 Tonne Gold Storage Vault

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Today’s AM fix was USD 1,320.75, EUR 963.63 and GBP 792.20 per ounce.
Yesterday’s AM fix was USD 1,313.75, EUR 959.22 and GBP 788.90 per ounce.   

Gold rose $13.50 or 1.03% yesterday to $1,323.70/oz. Silver climbed $0.39 or 1.82% at $21.83/oz.

Gold is marginally lower today but is 0.3% higher for the week. A higher weekly close today will be the third week of consecutive gains which would be bullish from a momentum and technical perspective.


Gold in U.S. Dollars - 5 Day - (Bloomberg)

Concerns about emerging markets including China, the U.S. economy and worries about global economic growth are underpinning gold's safe haven appeal. This has led to the 6% gains in February and the 9% gains so far in 2014. Yet prices are 45% below the nominal record high of  $1,915 an ounce reached in 2011.

Investment and store of wealth physical demand is underpinning prices and led to gold reaching 3 month highs of $1,332.45/oz last Tuesday.

Premiums for gold bars in Singapore were steady as they were in Hong Kong, but fell in Tokyo because of sharp gains of gold in yen terms.  Premiums for gold bars in Singapore were little changed at $1.20 to $1.50; Hong Kong premiums were at $1.30 to $1.70 according to Reuters.

The most active December gold contract on the Tokyo Commodity Exchange rose 43 yen/gram to 4,346 yen, within sight of a five-month high of 4,366 yen/gram hit on Tuesday on the back of a weakening yen.


Gold in Japanese Yen, 5 Years - (Bloomberg)

The technicals suggest that after a pullback, the precious metal may continue to rise. A period of correction and consolidation would ordinarily be expected after such rapid gains. The question is - do we see it now or after further gains?

If gold closes lower today and for the week, it would be bearish in the short term as follow through technical selling would be expected. A higher weekly close should lead to more gains next week.

To sum up, gold is vulnerable after the recent sharp gains. In the short term, technicals and momentum may dictate, rather than the positive fundamentals.

Gold traders and analysts are divided on the outlook for gold next week. The weekly Bloomberg gold survey shows that 14 are bullish, 15 are bearish and 4 are hold.


Gold in U.S. Dollars, 5 Years - (Bloomberg)

Last week reports showed retail sales and factory output unexpectedly fell in January and housing starts slumped causing renewed concerns about the U.S. housing market. The anemic economic recovery in the U.S. is very dependent on the fragile U.S. housing recovery.

Macquarie analysts said in a report this week that the annual gold demand figures for 2013 may signal a ‘mystery buyer.’ The World Gold Council’s ‘Gold Demand Trends’ report released Tuesday showed OTC investment, stock flows of 595 tonnes in 2013, with 317 tonnes in Q4, plus “excessive” Chinese gold imports. This “has given rise to much market speculation about a ‘mystery buyer’ of gold in 2013,” Macquarie said in a report picked up on by Bloomberg.

OTC investment demand includes opening of gold deposit accounts and other gold-backed products, especially in Turkey and China. Macquarie estimated stock build in China of about 300 tonnes. The WGC “did not rule out the possibility that some of the unknown demand was caused by unidentified central bank buying.”

The People’s Bank of China’s (PBOC) stealth gold reserve diversification programme likely continues.


IMF Gold Reserves - U.S., China, Germany and Russia (Bloomberg)

Russian gold buying slowed down in January. Russian January gold holdings were unchanged at 33.3 million troy ounces. The Russian gold reserves are valued at $41.7 billion as of the end of January versus $40.0 billion as of the end of December, the Russian central bank reported on its website.

The Chinese Gold & Silver Exchange Society is prepared to spend at least HK$ 1 billion to set up a gold vaulting warehouse in mainland China that will be able to store a massive 1,500 tonnes of gold.

President Haywood Cheung Tak-hay told the South China Morning Post of the development. Society members, who include all gold jewellery makers and jewellery and bullion retailers in Hong Kong, support the planned project in Qianhai.

A key issue, Cheung said, is for the warehouse to be given special status by Beijing so members can freely transfer gold and silver between Hong Kong and Qianhai. China still has capital controls and only 11 mainland banks are allowed to import gold.

Qianhai, about an hour by car from Hong Kong, was named in July 2012 as a testing ground for the free flow of yuan and other policies to encourage overseas investment. "At present, many foreign gold investors dare not trade in China as there are too many restrictions. They prefer to trade in Hong Kong which is a free market. If we can have a Qianhai warehouse, it would further increase our attractiveness," said Cheung.

The 7 Key Allocated Gold Storage Must Haves
A diversification into gold remains prudent and will again protect investors, both retail and institutional, pensions owners and savers, over the medium and long term. However, this is only the case if the gold owned is physical bullion coins and bars and not digital gold, pooled gold or paper gold. Fully segregated and fully allocated gold coin and bar storage remains the safest way to own gold.
 
There are a number of key storage must haves and we have compiled the absolute benchmark allocated gold storage list that will enable those seeking an allocation to physical gold to evaluate potential bullion and more importantly storage partners.

The 7 Key Allocated Gold Storage Must Haves

1. Ability to take delivery: Ensure that can you take delivery of your bullion when you want and where you want
2. Bullion authenticity: Ensure your gold bullion is produced and stored within the LBMA chain of integrity
3. Gold bullion audits: Ensure your bullion is audited daily, and annually by internationally recognised auditors
4. On-Line storage inventory: Ensure that you can log-on to view your bullion item description for bars or coins, quantity, gross weight, fineness and item value
5. Being able to visit and view holdings: Ensure that you can arrange to visit and view your physical gold coins and bars
6. Insurance of bullion at storage facilities: Ensure that your bullion provider and its storage partners have adequate insurance cover
7. Guarantee of bailment: Ensure that the legal ownership of the bullion remains with you

Conclusion
Guarantee of bailment is potentially the most important point. In the event that the company you store your bullion with is nationalised - insolvent governments are known to nationalise companies of a strategic value -  or goes into liquidation, your gold could be forfeited.

Some gold services offer ultra cheap storage, in many cases below the actual vaulting costs of ownership. This means that the storage rate you are getting is being subsidised by some other revenue stream, such as interest on currency deposits or possibly profits from speculation. If this is the case your bullion may be at risk. When choosing your provider steer away from the deep discounters and seek quality, otherwise, may then get exactly what you paid for in terms of access.

Thus owning gold directly and in a fully allocated and fully segregated account remains vital.   

Download your copy of 7 Key Allocated Gold Storage Must Haves here.