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Dave Forest

Dave Forest

Dave is Managing Geologist of the Pierce Points Daily E-Letter.

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Increasing Demand for Gold and Platinum as Catastrophe Insurance

A precious metals note today, in honor of gold breaking $1,300/oz (briefly) this morning.

Some of the buying that's propelled gold lately is from investors who want to hold metal as currency. Having something tangible in your pocket provides insurance if another financial catastrophe descends on the world.

JP Morgan recognizes this demand. On Wednesday, JPM announced it will open its first precious metals storage vault in Asia.

The facility will be located in Singapore, near Changi Airport (just in case you want to grab your gold and fly). The stated goal is to provide precious metals storage for "corporate, institutional and retail" clients.

Some of the people using this facility will be investors from outside Asia, looking to geographically diversify their gold holdings. Many investors are leery of keeping all their gold in one basket, just in case governments get confiscatory.

Perhaps more interestingly, the new facility will allow local Asian investors to get more involved in owning physical metal. Recently, the Singapore Mercantile Exchange announced the launch of a physically-settled gold contract that will be delivered at the JP Morgan vault.

But will gold be the number one choice in Singapore? Asia has always been a little different when it comes to precious metals. Many Asians prefer platinum as "catastrophe insurance".

Look at Japan. On the Tokyo Commodity Exchange (TOCOM), open interest in gold amounts to 3.5 million ounces. Or about 5% of the 60 million ounces in open interest seen on the NYMEX exchange in New York.

With platinum, Japan's percentage of global trade is much higher. Open platinum interest on TOCOM is 840,000 ounces. This is 45% of the NYMEX open interest in platinum, which currently stands at 1.9 million ounces.

As options like the new JP Morgan Singapore vault come available to Asian investors, it will be interesting to see what metal they choose. If they follow the Japanese example, this could become an important new source of demand for both platinum and gold.

By. Dave Forest of Notela Resources


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