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Sep 3, 2009, 6:22 a.m. EST
Hong Kong recalls gold reserves, touts high-security vault
In a challenge to London, Asian states invited to store bullion closer to home
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By Chris Oliver, MarketWatch
HONG KONG (MarketWatch) -- Hong Kong is pulling all its physical goldholdings from depositories in London, transferring them to ahigh-security depository newly built at the city's airport, in a movethat won praise from local traders Thursday.
The facility, industry professionals said, would support Hong Kong'semergence as a Swiss-style trading hub for bullion and would lessenLondon's status as a key settlement-and-storage center.
"Having a central government-sponsored vault would create a situationwhere you could conceivably look at Hong Kong as being a hub, wheremetal could be traded for the region," said Sunil Kashyap, managingdirector at Scotia Capital in Hong Kong, adding that the facility wasthe first with official government backing in the region.
The Hong Kong Monetary Authority, which functions as the territory'sunofficial central bank, will transfer its gold reserves stored inother vaults to the depository later this year, the Hong Konggovernment said in an earlier statement.
The monetary authority reported $63 million in physical gold reservesas of July 31, according to its International Reserves and ForeignCurrency Liquidity statement. The authority wouldn't disclose where thereserves are held, but local media reports cited gold traders as sayingthat London's the most likely location.
Traders said the new depository facility could also foster newfinancial products, such as exchange-traded funds based on preciousmetals.
The 3,660-square-foot depository, located at the city's main Chek LapKok Airport, will serve as a "storage facility for local and overseasgovernment institutions," according to the government statement.
Martin Hennecke, a financial advisor with the Hong Kong-based TycheGroup Ltd., said that could be appealing to regional central banksunnerved after watching the global financial system teeter on verge ofimplosion last year.
"Central banks are increasingly aware of the importance of having goldreserves at time of financial crisis and having it easily available attheir own disposal," he said.
Meanwhile, local newspaper reports said the Hong Kong MercantileExchange had signed an agreement to use the depository for its physicalsettlement and storage needs.
Marketing efforts will be launched to convince Asian central banks totransfer their gold reserves to the Hong Kong facility, according toreports citing Raymond Lai, finance director with the Hong Kong AirportAuthority.
Efforts will also be made to reach out to commodity exchanges, banks,precious-metals refiners and ETF providers, the reports said.
Management firm Value Partners planned to launch an ETF gold fund thatwill use Hong Kong instead of London as a repository for the goldbacking the fund, local reports said Thursday.
Chris Oliver is MarketWatch's Asia bureau chief, based in Hong Kong.