Know your assay from your elbow...

Gold is heading north again this morning.  As the dollar weakens and there is a flight to safe-haven “hard” assets, gold has broken through the USD 1,700/oz barrier and continues to rise.  Last week precious metals ETFs saw major capital inflows with the biggest – the SPDR Gold Trust – attracting $1.2 bn last week (and $3.7 of inflows over the last 4 weeks).  

A lot of precious metal trading used to be on an unallocated basis, which means that you could trade ounces of gold just like dollars in a bank account but that if the bank that held your account went belly up you were just another unsecured creditor in the queue.  Now much more trading (such as the metal behind the physically-backed precious metal ETFs) is on an allocated basis ie you know which specific gold bar is yours in the vault.  Running an allocated account comes at a higher cost but you don’t run the credit risk.  This is putting a greater emphasis on the ability to handle the physical aspects of the gold market for the key players.

I know a number of banks are looking to cash in on all of this interest in the gold market by providing precious metal products and services to their clients allowing them to access the gold “safe haven”, and I expect more to follow.  The physical bullion market (as with any physical commodity market) is not a place for the inexperienced, so expect a further uptick in demand for risk, operations and technology staff who know their assay from their elbow...