Gold Vault Opens in China as Bullion Goes From West to East

Gold Vault Opens in China as Bullion Goes From West to East

A gold vault that can store 2,000 metric tons, double China’s projected consumption this year, opened in Shanghai this month as owner Malca-Amit Global Ltd. seeks to benefit from rising demand in Asia’s largest economy. The facility is the biggest for the Hong Kong-based company, and it can also store diamonds, jewelry and art, Joshua Rotbart, precious metals general manager, said in an interview. The site could hold bullion worth about $82.7 billion at today’s price, Bloomberg calculations show. China’s total demand may reach 1,000 tons in 2013, the World Gold Council forecasts.Consumption in China may increase 29 percent to a record this year, overtaking India as biggest user as lower prices and higher incomes spur demand, according to the WGC. The investment in Shanghai’s new free-trade zone reflects a shift in world demand away from the U.S. and Europe toward Asia. Demand for gold jewelry, bars and coins in Greater China, India, Indonesia and Vietnam is now about 60 percent of the global total, up from 35 percent in 2004, according to HSBC Holdings Plc.

“Such a facility is a massive vote of confidence for the Chinese gold market,” said Philip Klapwijk, managing director of Hong Kong-based Precious Metals Insights Ltd. “The trend for demand has been very strongly positive,” said Klapwijk, who’s monitored precious metals since 1988.

Annual Loss

Bullion is headed for the first annual drop in 13 years as expectations that the U.S. Federal Reserve will curb stimulus hurt investment demand, spurring record outflows from exchange-traded products. Bullion in London traded at $1,286.25 an ounce at 8:27 a.m. in Shanghai, 23 percent lower this year and 33 percent below the record $1,921.15 reached in September 2011.

“There’s going to be more gold coming to China,” Rotbart said on Nov. 5. “This place can be used as a trade hub basically, so foreign banks can trade with domestic banks within this facility, saving costs and time.”

The Shanghai vault is targeted at international and Chinese financial institutions, as well as the arts community, Rotbart said at the Waigaoqiao free-trade area, where firms have fewer restrictions on investment and foreign-exchange requirements. Apart from Hong Kong and Singapore, where capacity is 1,000 tons each, Malca-Amit also has storage space in New York, Zurich, Geneva, London and Bangkok.

“We expect big demand from foreign banks and we are talking to a few,” said Rotbart. “It’s a step forward for them because it puts less limit on how they operate in China.”

Preserving Wealth

While gold in China and elsewhere in Asia is traditionally seen as a way of preserving wealth, Goldman Sachs Group Inc. and Credit Suisse Group AG are among those forecasting more losses. Bullion will average $1,175 in the third quarter of next year, according to the median of estimates from the 10 most-accurate precious metals analysts tracked by Bloomberg in a survey published last month. Prices were last at that level in 2010.

Investors sold more than 755 tons from gold-backed ETPs this year as holdings contracted every month, according to data compiled by Bloomberg. There is a risk that bullion may drop below $1,000 an ounce as the Fed withdraws stimulus and economic data improve, Goldman Sachs forecast Sept. 13.

China’s consumption totaled 776.1 tons in 2012, compared with 864.2 tons in India, according to the WGC. Usage in China rose 54 percent to 706.36 tons in the first six months, according to the China Gold Association, which is funded by miners, refiners, retailers and jewelry makers.

Asian Vaults

Australia & New Zealand Banking Group Ltd., Deutsche Bank AG and UBS AG also opened vaults in Asia this year, and U.K. bullion exports surged, a sign to Macquarie Group Ltd. of the flow of metal from west to east. Bullion demand across Asia will keep expanding as inflation spurs purchases, HSBC economists including Frederic Neumann said in a report on Oct. 18.

China ranks fourth worldwide in terms of the number of people with $1 million or more in investible assets, according to a report by Cap Gemini SA and Royal Bank of Canada. The number of high-net-worth individuals in the country rose 14 percent to 643,000 in 2012 from the year before, the report said. China’s gross domestic product increased to $8.4 trillion last year, from $1.5 trillion in 2002, Bloomberg data show.

Bullion has been flowing into mainland China even as local output increased. Net imports from Hong Kong more than doubled to 826 tons in the first nine months of the year, according to Bloomberg calculations based on government figures. Local output rose 8.2 percent to 270.2 tons from January to August.

Shanghai is home to the country’s biggest physical gold exchange, founded by the People’s Bank of China. Gold volume on the Shanghai Gold Exchange rose to a five-month high of 22,703 kilograms on Oct. 8.

China started the pilot free-trade zone in Shanghai at the end of September, promising a more business-friendly regulatory framework and relaxed capital-flow rules. The country may allow more companies to import and export gold under draft rules released by the central bank on Sept. 30.

To contact the reporters on this story: Chanyaporn Chanjaroen in Singapore at; Stephen Engle in Beijing at

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (, the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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