Surging gold prices bring about insurance trouble at storage vaults, report says
Sputnik news agency and radio 14:59 GMT 05.09.2020
The latest record prices for gold stashes come with an apparent catch for facilities’ keepers, as they have to procure insurance for their hoards while making sure the value doesn’t surpass the coverage.
Increasing demand for gold, universally deemed as a safe haven during economically tumultuous times, implies that the business conditions are favourable for companies that store the world’s bullion, Bloomberg reported, adding that despite the obvious pluses for such businesses, there is an obvious catch: bars of the precious metal suddenly become much more difficult to insure.
The challenge is that insurers place a cap on how much financial exposure they are ready to shoulder for each vault. More specifically, as the price of gold has risen this year, gaining at least 37 percent, the number of insurable ounces of gold at all storage places has inevitably shrunk.
According to Bloomberg, it’s no concern for holders of the biggest stashes of the precious metal, worth tens of billions of dollars, because they are “too valuable to insure fully anyway” and top commercial banks like JPMorgan Chase & Co and HSBC Holdings Plc, which run some of London’s biggest gold vaults, take on the rest of the liability themselves.
However, for other storage facilities around the world, including hangars near Heathrow, from where about three tons of gold were heisted back in 1983, the rising gold prices may require measures to ensure that the value of the hoards they house doesn’t exceed the coverage.
“The limiting factor in this business is not the space, it’s the insurance”, says Ludwig Karl, board member of Swiss Gold Safe Ltd, which manages vaults in the Alps.
“You could put all the gold in the world in a large storage space, but you would never be able to get the insurance for it”.
One of the ways out of the liability hurdle is building more storage rooms so as to spread out the risk and procure insurances for them on an individual basis. Karl says Swiss Gold Safe is opening a new vault ahead of schedule now that demand has skyrocketed because of the pandemic.
QBE European Operations Plc, an underwriting company on Lloyd’s, clings to the same point of view: by combining all the underwriters available on the Lloyd’s platform, you can get at most about $2.5 billion of coverage for one vault, according to QBE, which argues that they would rather have gold stored in a number of locations rather than one. “The problem is, the number of locations is running out”, QBE commented.
