Surging prices lift the value of many stashes above coverage limits.
Surging demand for gold means business is booming at the companies that store and protect the world’s bullion. But record prices come with a catch: All those piles of yellow bars are suddenly much trickier to insure.
For centuries, gold has been an irresistible target of heists both real and fictional. And though theft on a major scale is rare, it can be hugely expensive. When armed burglars made off with about 3 tons of gold from a warehouse near Heathrow Airport in 1983, Lloyd’s of London paid out for the lost metal, which at today’s prices would be worth more than $180 million.
The difficulty is that insurers place a cap on how much financial exposure they’ll assume for each vault. As the price of gold rises—it gained as much as 37% this year—the number of insurable ounces at each site naturally shrinks.
Vault Limits
Due to insurance caps, the number of gold bars you can hold in a vault shrinks as the price of gold rallies
Data: Bloomberg
Note: Vault bar limits are based on a $100 million insurance cap and 400-ounce gold bars
That’s not a concern for holders of the biggest stashes of bullion, worth tens of billions of dollars, because those hoards are too valuable to insure fully anyway. Large commercial banks such as JPMorgan Chase & Co. and HSBC Holdings Plc that run some of London’s biggest gold vaults assume the rest of the liability themselves.
But for other storage facilities around the world, including the businesslike hangars near Heathrow and strongrooms buried deep in the Swiss Alps, surging gold prices can require a juggling act to ensure that the value of the gold they hold doesn’t exceed their coverage.
“The limiting factor in this business is not the space, it’s the insurance,” says Ludwig Karl, board member of Swiss Gold Safe Ltd., which manages vaults in the Alps. “You could put all the gold in the world in a large storage space, but you would never be able to get the insurance for it.”
Generally, the answer is to build more strongrooms, spreading out the risk and procuring insurance for them individually. Swiss Gold Safe is opening a new vault sooner than planned now that demand has exploded because of the pandemic, Karl says.
But even with more sites, insurance remains a limiting factor.
QBE European Operations Plc, an underwriting company on Lloyd’s, won’t insure any single client or bank for more than $150 million of gold, says specie portfolio manager Ryan Joseph. By combining all the underwriters available on the Lloyd’s platform, you can get at most about $2.5 billion of coverage for one vault, according to QBE.
“We would rather it was stored in a number of locations rather than one,” Joseph says. “The problem is, the number of locations is running out.” —With Jack Farchy and Jeremy Diamond
