The world of traditional finance can be a very strange creature at certain times. With the Chinese economy facing a devaluing Yuan and a major stock market issue, people are wondering how long it will take until the country’s economy implodes. Meanwhile, China’s (and the world’s) largest bank has just bought a lease on a huge London-based bullion vault as a way to diversify its portfolio.
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ICBC Standard Bank Buys London Gold Vault
When the country’s national currency is not offering any signs of improvements in the short term, even Chinese banks have to start looking elsewhere to keep their wealth safe. For the ICBC Standard Bank — which is China’s largest financial institution — that haven comes in the form of a silver and gold vault based in London, England.
What makes this story even more interesting is how the lease belongs to Deutsche Bank, but ICBC Standard Bank decided to buy the agreement as a way to diversify their portfolio. Rather than flocking to non-traditional means, such as Bitcoin, the bank decided to gamble on London’s bullion market. Deutsche Bank closed its precious metals trading market and is no longer offering gold and silver benchmark price setting services.
But there’s more to this story, as ICBC Standard Bank is planning to become a major player in the London bullion-over-the-counter business in the next few years. This vault lease purchase comes on the heels of taking a controlling stake in the London-based Global Markets business in 2015, and their application to become a clearing member of the local bullion business.
Very few people are aware of how five of the largest banks in the world – including HSBC, Barclays, and UBS – are settling daily transactions in bullion, worth of up to $5 trillion USD on a yearly basis. All of these banks will decide on whether or not they will accept the ICBC Standard Bank application to become a member of the London Precious Metals Clearing company.
Looking at the vault itself, it has the capacity to hold up to 1,500 tonnes of bullion. Keeping in mind how this vault only became operational in June of 2014, this move is a major step forward for a bank located in a country where financial woes are becoming the norm rather than the exception. At the time of publication, there was no official indication as to how much ICBC Standard Bank paid for the lease, although it could be lower than $4m USD.
Bullion is an Odd Choice
Depending on how one looks at this situation, it can be argued this movie is a sign that even China’s largest bank has little faith in the country’s economy. While it is only normal for big banks seek new opportunities to make money, the bullion market seems to be a very odd choice.
The Chinese economy does not offer any options for banks to make money right now. That scenario became crystal clear when the People’s Bank of China pumped $20bn USD into money markets and could not prevent further losses on the stock market. In fact, trading had to be halted the very next day, as losses amounted to 7% in a matter of hours.
However, the bullion market is not the most stable investment strategy either at this point. The pricing of gold and silver has been declining steadily for quite some time now, despite the scarcity aspect of both precious metals. Gold prices have picked up over the past few days, but this is most likely due to a surge in banks flocking out of fiat currency investments and into other assets.
Even though no bank will ever admit it on the record, Bitcoin offers a far more lucrative appeal compared to any other asset available in the world today. Not only is Bitcoin scarce, but the digital currency operates outside of the control of banks altogether. Plus, with the price remaining stable throughout most of 2015, as Bitcoin has matured from a speculation vehicle into a portfolio diversification option making it the best performing currency of the past year.
Any bank in the world would be wise to diversify their assets by obtaining a minor stake in Bitcoin altogether. The digital currency has a lot of potential for a price increase over the next few years, and the underlying blockchain is of great value to any forward-looking financial institution. In fact, the idea was proposed to the Central Bank of Barbados not too long ago, and the numbers were quite astonishing.
What are your thoughts on this decision by the ICBC Standard Bank? Is Bullion worth exploring, or is Bitcoin a better alternative? Let us know in the comments below!
Source: Telegraph UK
Images courtesy of ICBC Standard Bank, Shutterstock, Market Sanity