Skip to main content

Gold bullion in the vaults at the Bank of England.NewsCast

When Barry Wainstein dines at one of his favourite New York restaurants, he notices a few things most patrons miss - fortified walls and high ceilings.

"When you walk through, you know you're walking into a vault," says the global head of foreign exchange and precious metals at Scotia Capital Inc. He should know: Vaults are Mr. Wainstein's business.

Since the 1990s, scores of vaults around the banking world have been closed or converted into restaurants or offices as demand fell for bullion storage and the sites were sold. It's a shame some of them can't go back to their original purpose, because vaults are suddenly popular again.

With the global appetite for precious metals surging, along with the rise of exchange-traded funds that hold gold and silver bullion in reserve, demand for large, secure, vault space is on the rise around the world.

JPMorgan Chase & Co. recently reopened an underground bullion vault in New York that sat dormant for more than a decade. And Bank of Nova Scotia, which is a significant player in the global vault business through its precious metals arm, ScotiaMocatta, is doing whatever it can to arrange more capacity to meet the appetite.

"If you look at the past 10 years, basically what you've had is everyone's been contracting in the vaulting business," Mr. Wainstein said. "The vault space is now being used up quite rapidly. There is tremendous demand."

Scotiabank, which has a gold vault in New York and subcontracts storage space in India, has been shoring up capacity in Toronto and London as well. In a deal reached last spring, but not made public, Scotia Capital arranged exclusive space inside the Bank of England's 300-year-old vault to store gold and other precious metals in London. With well more than $100-billion worth of gold inside, it is among the most storied vaults in the world.

For a private financial institution to have access to a country's central bank vault is unusual, Mr. Wainstein said. It took a close relationship with the Bank of England through Scotiabank's many dealings to secure the arrangement. He would not elaborate on the terms, other than to say Scotiabank, as the tenant, pays rent for the space.

It is now a key selling point for Scotiabank's international customers, giving them more choice on where they store their gold holdings. "There will not be another bank that has anything like this," he said of the Bank of England deal.

In Toronto, where Scotiabank's Canadian bullion vault sits under Scotia Plaza in the heart of downtown, the existing structure can't expand, so the bank has been getting creative. Like cleaning out a closet, Scotiabank has been reorganizing what's inside the vault, taking out items that don't need to be kept under the most secure form of lock-and-key to make room for more stacks of bullion.

"If you can't expand physical space, then you move things around," Mr. Wainstein said.

Vaults - like their contents - are a sensitive subject. For security reasons, Mr. Wainstein won't discuss much about the banks' sites or what's in them. Scotiabank's New York vault, built near John F. Kennedy International Airport after its main U.S. vault was destroyed in the collapse of the World Trade Centre, is the bank's other North American bullion storage facility.

Mr. Wainstein expects more financial institutions will look at increasing their capacity if demand continues to rise. However, their options are limited; although JPMorgan has reopened a dormant bullion vault, another of its former vaults, built in 1902 for John Pierpont Morgan, is now a Manhattan steakhouse.

The jump in demand comes from a variety of players that weren't much of a force a decade ago when surplus vaults fell out of favour. They include the gold-backed funds that have become popular investment properties, as well as ultra-high-net-worth investors who want to hold large stores of bullion amid record-setting prices. Concerns about currency values and a sputtering global economic recovery helped push gold above $1,300 (U.S.) an ounce for the first time two weeks ago.

"Gold 10 years ago was $280 an ounce," Mr. Wainstein noted. "So nobody wanted to worry too much about getting a lot of bullion into their vault. It just didn't seem like a thriving business. That has changed."

..................................................................

A world of gold



Central banks, international entities and governments hold about 20.5 per cent of the world's gold, which totals 30,535.6 tonnes.



1. United States



Value of reserves: $387-billion



Holdings: 8,133.5 tonnes



2. Germany



Value of reserves: $162-billion



Holdings: 3,402.5 tonnes



3. International Monetary Fund



Value of reserves: $138-billion



Holdings: 2,907 tonnes



4. Italy



Value of reserves: $117-billion



Holdings: 2,451.8 tonnes



5. France



Value of reserves: $116-billion



Holdings: 2,435.4 tonnes



79. Canada



Value of reserves: $162-million



Holdings: 3.4 tonnes



Sources: CNBC, World Gold Council's September 2010 world holdings survey

Report an editorial error

Report a technical issue

Editorial code of conduct

Tickers mentioned in this story

Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 28/03/24 4:29pm EDT.

SymbolName% changeLast
BNS-N
Bank of Nova Scotia
+1.21%51.78
BNS-T
Bank of Nova Scotia
+0.94%70.07

Follow related authors and topics

Authors and topics you follow will be added to your personal news feed in Following.

Interact with The Globe