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Hong Kong to bring its gold reserves back home, and what that means for London
Author: Geoff Candy | Thursday , 03 Sep 2009

The unveiling of a new precious metal depository at Hong Kong International airport could see the beginning of a new challenger to London's dominance of the yellow metal

Wednesday's unveiling of the new precious metal depository at Hong Kong International Airport made very few ripples on the global news agenda. But, the implications of the development are much more far-reaching.

According to the Xinhua news wire service, the 340-square-meter depository will be used to "provide secure storage and physical settlement services to central banks, commodity exchanges, bullion banks, precious metal refineries and issuers of exchange traded funds."

The report adds, in addition to the safety and security elements of the new depository, having it based in Hong Kong will, "help reduce transportation costs and settlement risks for precious metals including gold, silver, platinum and palladium."

And, if that wasn't a clear enough, John Tsang, Hong Kong Special Administrative Region (HKSAR) Government Financial Secretary was quoted as saying, the depository, "will enable Hong Kong to tap into opportunities from the growing demand for gold and other commodities in the region,

"The opening of the depository tied in with the HKSAR government's policy to enhance Hong Kong's position as an international financial and logistics center," he added.

Had such an announcement happened at the peak of the financial sector froth, it would have raised few eyebrows but, the timing of the unveiling, just as central banks are fondly returning to gold as a store of wealth and, especially in the East, looking skeptically at the West's ability to store wealth, is nothing short of spectacular.

Especially when one considers reports that the Chinese government is vigorously promoting bullion ownership to its over 1 billion citizens - someone would, after all, have to take physical possession of much of that metal.

Also, the news that Hong Kong is now positioning itself as an "international financial and logistics center" backed, as it were by the suddenly obvious economic strength of China should have a few Western bankers and vault owners sweating even more than they were already.

Especially as, according to Xinhua, the Hong Kong Monetary Authority "is planning to transfer its physical gold reserves stored at other vaults to the depository later this year

"The Airport Authority and the Mercantile Exchange also signed an agreement Wednesday requiring all clearing members of the exchange to keep gold-bar stock at the depository," it added.

But while the news didn't make major headlines, traders in Hong Kong are very excited by the prospect, as MarketWatch's Chris Oliver writes, "The facility, industry professionals said, would support Hong Kong's emergence as a Swiss-style trading hub for bullion and would lessen London's status as a key settlement-and-storage center."

If nothing else, Western vaults lose the holding fees associated with the roughly $63m in physical reserves the monetary authority has. But, a far more far reaching result would be the emergence of Hong Kong, as a new hub for metal trade, very closely linked to a country that stands soon to become not only a massive economic super power but also overtaking India to become the biggest consumer of physical gold.

 


Hong Kong to bring its gold reserves back home, and what that means for London

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