Burgeoning bullion prices see vaults leap to head of banks’ priority lists

Some of the world's biggest banks and security companies are building vaults to store gold bars and coins worth tens of billions of dollars, cashing in on resurgent demand and record prices.<?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />

The growing interest in gold among investors worried about the global economy and <?xml:namespace prefix = st1 ns = "urn:schemas-microsoft-com:office:smarttags" />Europe's sovereign debt crisis has led to a shortage of long-term storage space, prompting banks to open new vaults for the first time in years.

Bankers said that vaulting had become highly profitable. Rising bullion prices translate into higher storage fees, which are usually calculated as a percentage of the gold price. Gold prices this week rose to a nominal record of $1,251.20 a troy ounce, up 14.5 per cent since January. Yesterday, bullion traded at $1,226.

“Physical gold is being sought more than ever and that is causing all sorts of strains,” said Peter Hambro, chairman of Petropavlovsk, the gold miner.

Much of the increased demand comes from exchange traded funds. The world's largest, the SPDR Gold Trust, was yesterday holding a record 42m ounces of gold worth $51.5bn at current prices.

While some banks said they had space, others said their vaults were nearly full. Several said they were building or planning new vaults. JPMorgan recently opened a new gold vault in Singapore and Via Mat International, the Swiss-based security company, has just opened a silver safe warehouse in west London. Deutsche Bank is mulling a new vault, bankers said.

Frank Ziegler, head of precious metals at BayernLB in Germany, said its vault was full. “We are discussing increasing the size. We are just at the planning phase,” he said. Roger Jones, global head of commodities at Barclays Capital in London, said the bank was “actively looking at the precious metal vaulting business”.