Best of the Week
Most Popular
1. TESLA! Cathy Wood ARK Funds Bubble BURSTS! - 12th May 21
2.Stock Market Entering Early Summer Correction Trend Forecast - 10th May 21
3.GOLD GDX, HUI Stocks - Will Paradise Turn into a Dystopia? - 11th May 21
4.Crypto Bubble Bursts! Nicehash Suspends Coinbase Withdrawals, Bitcoin, Ethereum Bear Market Begins - 16th May 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.Cathy Wood Ark Invest Funds Bubble BURSTS! ARKK, ARKG, Tesla Entering Severe Bear Market - 13th May 21
7.Stock Market - Should You Be In Cash Right Now? - 17th May 21
8.Gold to Benefit from Mounting US Debt Pile - 14th May 21
9.Coronavius Covid-19 in Italy in August 2019! - 13th May 21
10.How to Invest in HIGH RISK Tech Stocks for 2021 and Beyond - Part 2 of 2 - 18th May 21
Last 7 days
RAMPANT MONEY PRINTING INFLATION BIG PICTURE! - 16th Jun 21
The Federal Reserve and Inflation - 16th Jun 21
Inflation Soars 5%! Will Gold Skyrocket? - 16th Jun 21
Stock Market Sentiment Speaks: Inflation Is For Fools - 16th Jun 21
Four News Events That Could Drive Gold Bullion Demand - 16th Jun 21
5 ways that crypto is changing the face of online casinos - 16th Jun 21
Transitory Inflation Debate - 15th Jun 21
USDX: The Cleanest Shirt Among the Dirty Laundry - 15th Jun 21
Inflation and Stock Market SPX Record Highs. PPI, FOMC Meeting in Focus - 15th Jun 21
Stock Market SPX 4310 Right Around the Corner! - 15th Jun 21
AI Stocks Strength vs Weakness - Why Selling Google or Facebook is a Big Mistake! - 14th Jun 21
The Bitcoin Crime Wave Hits - 14th Jun 21
Gold Time for Consolidation and Lower Volatility - 14th Jun 21
More Banks & Investors Are NOT Believing Fed Propaganda - 14th Jun 21
Market Inflation Bets – Squaring or Not - 14th Jun 21
Is Gold Really an Inflation Hedge? - 14th Jun 21
The FED Holds the Market. How Long Will It Last? - 14th Jun 21
Coinbase vs Binance for Bitcoin, Ethereum Crypto Trading & Investing During Bear Market 2021 - 11th Jun 21
Gold Price $4000 – Insurance, A Hedge, An Investment - 11th Jun 21
What Drives Gold Prices? (Don't Say "the Fed!") - 11th Jun 21
Why You Need to Buy and Hold Gold Now - 11th Jun 21
Big Pharma Is Back! Biotech Skyrockets On Biogen’s New Alzheimer Drug Approval - 11th Jun 21
Top 5 AI Tech Stocks Trend Analysis, Buying Levels, Ratings and Valuations - 10th Jun 21
Gold’s Inflation Utility - 10th Jun 21
The Fuel Of The Future That’s 9 Times More Efficient Than Lithium - 10th Jun 21
Challenges facing the law industry in 2021 - 10th Jun 21
SELL USDT Tether Before Ponzi Scheme Implodes Triggering 90% Bitcoin CRASH in Cryptos Lehman Bros - 9th Jun 21
Stock Market Sentiment Speaks: Prepare For Volatility - 9th Jun 21
Gold Mining Stocks: Which Door Will Investors Choose? - 9th Jun 21
Fed ‘Taper’ Talk Is Back: Will a Tantrum Follow? - 9th Jun 21
Scientists Discover New Renewable Fuel 3 Times More Powerful Than Gasoline - 9th Jun 21
How do I Choose an Online Trading Broker? - 9th Jun 21
Fed’s Tools are Broken - 8th Jun 21
Stock Market Approaching an Intermediate peak! - 8th Jun 21
Could This Household Chemical Become The Superfuel Of The Future? - 8th Jun 21
The Return of Inflation. Can Gold Withstand the Dark Side? - 7th Jun 21
Why "Trouble is Brewing" for the U.S. Housing Market - 7th Jun 21
Stock Market Volatility Crash Course (VIX vs VVIX) – Learn How to Profit From Volatility - 7th Jun 21
Computer Vision Is Like Investing in the Internet in the ‘90s - 7th Jun 21
MAPLINS - Sheffield Down Memory Lane, Before the Shop Closed its Doors for the Last Time - 7th Jun 21
Wire Brush vs Block Paving Driveway Weeds - How Much Work, Nest Way to Kill Weeds? - 7th Jun 21
When Markets Get Scared and Reverse - 7th Jun 21
Is A New Superfuel About To Take Over Energy Markets? - 7th Jun 21
Why Tether USDT, Stable Scam Coins Could COLLAPSE the Crypto Markets - Black Swan 2021 - 6th Jun 21
Stock Market: 4 Tips for Investing in Gold - 6th Jun 21
Apple (AAPL) Summer Correction Stock Trend Analysis - 5th Jun 21
Stock Market Sentiment Speaks: I 'Believe' We Rally Into A June Swoon - 5th Jun 21
Stock Market Russell 2000 After Reaching A Trend Channel High Flags Out - 5th Jun 21
Money Is Cheap, Own Gold - 5th Jun 21
Bitcoin and Ravencoin Cryptos CRASH Bear Market Buying Levels Price Targets - 4th Jun 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Gold Lease Rates - What Changed in Swiss Gold Banking?

Commodities / Gold and Silver 2013 Feb 07, 2013 - 10:22 AM GMT

By: Adrian_Ash

Commodities

What the Swiss banks' move away from unallocated accounts says about gold, and about banking...

Imagine you could sell someone something, but keep ownership of it, and then use it yourself, writes Adrian Ash at BullionVault.

You could lend it out for interest, say, or raise loans of your own by pledging it as collateral. Or even sell it to raise cash when things get tight. And if your business fails entirely, the "owner" will just have to cue up with all of your other creditors, and be thankful with whatever small change is paid out by the courts.


This is pretty much what big banks get away with in gold - or they did. Now Swiss banking giants UBS and Credit Suisse are changing their gold-account fees for big, institutional clients. The aim is to discourage other institutions from keeping gold with them like this - so-called "unallocated gold". It looks a lot like putting cash on deposit. The bank gets to own it, and so it gets to go banking with the value as well. But now the business of selling gold but without selling anything no longer pays.

And if you can't make a return from that, what hope is there for big banking bonuses in 2013 or beyond?

You might wonder, as I did, if this news has something to do with the collapse of gold interest rates...

Gold lease rates: Average annulized % return to lender

...but as you can see, there hasn't been much money to make in lending out gold - whether it belongs to you or not - for nearly a decade now. Yes, the collapse in cash interest rates played a part in that switch. (The returns above are what a gold lender makes after paying a borrower to take it away, receiving the gold's cash value in return, and then lending out that money instead. Just another oddity of the gold market.) But the slump in lease rates came as gold miners stopped borrowing gold, selling it for fear of further price falls, and instead began expecting higher prices for their future output. And lending was never really the point of unallocated gold accounts at the big banks anyway.

Instead, from what our friends in gold banking and Swiss bullion storage tell us, the big banks were keen to get big piles of shiny metal which they could then show to regulators. "Look, all this belongs to us, and not to clients," they could say, before going out and banking with it - investing, borrowing and lending with that weight of highly liquid, instantly priced bullion behind them. Or at least, banking with a hefty part of its value.

Most especially in Switzerland, the big banks gathered such unallocated gold from their smaller competitors - those private Swiss banks caring for very wealthy customers, but lacking the secure, underground gold vaults which such well-heeled clients might expect. Perhaps the big banks could help? Sure they could. But only if a chunk of the client's gold wound up on the big bank's balance sheet too.

Whatever the proportion of allocated to unallocated gold, this meant confusion for any private-bank customer wanting to own his or her metal outright. Because the bullion was now split between the big bank's balance sheet and the private bank's own account in the vault. So the actual client was a long way from fully allocated. Come a banking crisis - not that such things ever happen of course, until they do - he or she would most likely find themselves exposed to not one but two Swiss institutions.

Now, if this unallocated gold trail hadn't existed, neither would BullionVault today. Paul Tustain founded it in 2003 precisely because of the confusion - and risks - he encountered when trying to buy gold for himself a year earlier. The Financial Times, which broke the new move last week, explains the background:

"Under the more common 'unallocated' gold accounts, depositors' gold appears on banks' balance sheets. [But as regulations change, that is] forcing them to increase their capital reserves."

Just as with any loan the bank takes in - including household and business deposits - it has to match at least some of that debt with ready cash. Or rather, with reserves held at the central bank. This was always the way, but 2013 sees new regulations - aka Basel III - raise the requirements to try and avoid a repeat of 2007 and all that. Before now, offering unallocated gold at least put bullion onto the bank's balance sheet. But with these new regulatory hassles and thus costs (money unlent is dead money to banks, remember) unallocated gold has suddenly become lose-lose to the banks.

This marks a big shift in the banks' provision of gold, and there is more on this to come no doubt. Such as how the Swiss giants - who provide a lot of gold-vaulting to the smaller Swiss private banks - are actually raising their unallocated fees by 20%, as the press report. Unallocated gold shouldn't cost you an ongoing fee, because why would you pay to store something which isn't yours? On the other side, according to Dow Jones' report, they are actively cutting their allocated storage fees too. Suggesting perhaps that either they'd like to get the private-banks' clients directly. Or they've got a lot more spare capacity in Swiss vaulting than earlier press reports would suggest.

Either way, private savers trying to hide out in gold aren't likely to see vaulting fees drop. Swiss private banks charge 1% and more per year to their clients, and a 1/100th of a per cent drop in their costs is unlikely to show up in their "retail" pricing. (BullionVault is best-value worldwide, by the way, at 0.12% per year for specialist non-bank, fully allocated storage in your choice of Zurich, New York or London.)

So for now, this change simply marks another key stage for gold and for banking. One is making a long return as a core asset to be owned outright. The other is struggling to cream off the kind of fat margins which once paid so well.

By Adrian Ash
BullionVault.com

Gold price chart, no delay   |   Buy gold online at live prices

Formerly City correspondent for The Daily Reckoning in London and a regular contributor to MoneyWeek magazine, Adrian Ash is the editor of Gold News and head of research at www.BullionVault.com , giving you direct access to investment gold, vaulted in Zurich , on $3 spreads and 0.8% dealing fees.

(c) BullionVault 2013

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

Adrian Ash Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in