Why Is HSBC Clearing Out So Much Physical Gold?


". . .fleets of armored cars laden with gold, ferrying the precious metal out of New York."

It seems that everyone these days wants gold. Real, physical gold bars that believe are resting safely in a well-guarded vault. HSBC's New York vault, for example, buried deep below its 5th Avenue tower, where it has stored people's gold since it inherited the facility from Republic Bank a decade ago.

But no more.

HSBC has served notice to its retail customers—many of whom are simply middlemen and custodial services that store gold with HSBC on behalf of hundreds of their own account holders—that all their gold must be out of its facility by July 2010. HSBC's letter says that, in the absence of directions to the contrary, clients' metal "will be returned to the address of record. . .at your expense."

Picture, if you will, what the Wall Street Journal reported: "fleets of armored cars laden with gold, ferrying the precious metal out of New York."

Where to? One destination is a pair of warehouses operated by FideliTrade, the parent company of Delaware Depository Service Co. Its Wilmington vaults have been filling up quickly. "I have never seen any relocation like this," said Jonathan Potts, the managing director. The logic behind HSBC's decision, according to the WSJ is simple. The vaults are being cleared of smaller clients to make more room for institutional holdings, because "retail customers tend to be more expensive [to service] in part because of their diverse holdings. They usually buy American Eagle or Canadian Maple Leaf coins, and bars of various weights and sizes, all of which need to be categorized and stored separately. In contrast, institutions typically buy standardized bars of 100 or 400 ounces, making them easier to store. Institutions also tend to hold the metal for long periods."

HSBC has cast its vote. It clearly believes that it's going to be getting more gold from the COMEX, and it's making room by giving other depositors the boot. Perhaps the bank knows something we don't know, or perhaps it's just acting out of reasonable expectation.

Either way, it's telling us that the demand for gold is going to continue rising.

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