Gold and silver are in a secular bull market.  Gold has increased over the past decade from $250 to over $1900 per ounce. Silver has surged even more, climbing from under $5 to nearly $50 an ounce.  Investors have turned to precious metals for safety and diversification as global fears of country defaults, inflation, and currency debasement rage on.  With gold and silver gaining popularity, many organizations are looking for more space to store their precious metals.

Last year, J.P. Morgan reopened an underground gold vault in New York that had been closed for 20 years.  JPM also opened its first vault in Asia for precious metals storage in Singapore. This year, the bullion vault business continues to boom. Bloomberg reports that the bullion vault of Swiss Precious Metals is “almost full after demand rose fivefold in the year since the Geneva-based company opened the facility.”  Earlier in the week, Barclays Capital announced it will open a new precious metals vault in London next year.  The bank said, “This is part of our long-term commitment to the bullion market.” After building for two years, The Brink’s Co. opened its above ground vault in London earlier this year.  The Brink’s Co. and Deutsche Bank are currently considering building more faults in London as customer demand continues to grow. In April, the Perth Mint also announced it was reorganizing and expanding its small silver bar manufacturing plant in order to effectively double manufacturing capacity.

Banks and mints are not the only ones needing more space for precious metals.  CNN reported in August that Maximum Security, which sells safes for jewelry, coins, guns, and other valuables, said demand has climbed more than 30% in just two weeks.  Company owner, Nancy Bryan said, “People are just plain scared.  What is happening to our financial markets is the most recent addition.  Folks are worried about the decreasing value of the dollar, burglaries on the rise in their neighborhoods, and even the possibility that the unrest we are seeing in other parts of the world slipping over to our country.”  Another safe company sold an average of $13,000 in safes per day during the beginning of August.  This was more than three times its daily average of $3,500.  Early August was highlighted by the ugly debt ceiling debate taking hold in the United States.

The fundamental reasons for holding precious metals still remain today.  Although the US resolved the debt ceiling debate and avoided a default, the can was simply kicked down the road.  Other countries such as Greece hang by a thread as credit default swaps are predicting a default, as is credit rating agency Fitch.  Fitch said, “Greece will probably default, but will not leave the euro zone.”  Inflation is still weighing on consumers and companies. ConAgra Foods recently reported a 42% drop in fiscal first quarter earnings due to a 15% jump in the cost of goods.  The foods giant also raised its inflation expectations to 9%-10% for its consumer foods segment.  Currency debasement is still alive and well in many parts of the world.  For example, the Swiss National Bank recently announced it would buy unlimited quantities of foreign currencies to prevent the franc from rising above 1.20 Swiss francs to the euro.  Currency debasement is seen by many as a desperate measure to boost exports and stabilize a country’s economy.

Reprinted from The Wall Street Journal Cheat Sheet