HSBC Bank Tips Their Hand Regarding Gold Demand Expectations

It seems that everyone these days wants gold. Real, physical gold coins that they can hold in their hands, or bars that they’re assured are resting safely in a well-guarded vault. HSBC’s New York vault, for example, buried deep below its 5th Avenue tower, where it has stored people’s gold since it inherited the facility from Republic Bank a decade ago.

But no more.

HSBC has served notice to its retail customers – many of whom are simply middle-men and custodial services which store gold with HSBC on behalf of hundreds of their own account holders – that all their gold must be out of its facility by July 2010.

The logic behind HSBC’s decision, according to the Wall Street Journal, is simple. The vaults are being cleared of smaller clients in order to make more room for institutional holdings.

It all has to do with the COMEX. That exchange, which handles futures activity in gold, has to maintain a cache of metal with which to settle trades. As a courtesy, it will also arrange to store gold for buyers who don’t want to take physical delivery. But it has no vaults of its own. It contracts with four banks to do the actual storage, though only two maintain significant amounts: of the 9.73 million ounces of COMEX gold, Scotia Mocatta has the most, nearly 5.1 million; HSBC USA is next, with over 4.1 million.

The amount of gold warehoused by the COMEX has exploded since the metal’s bull run began in 2001.

The trend is obvious, and what it means is that HSBC needs an ever-increasing amount of space for its COMEX gold. Provided, of course, that the trend remains in place. Or accelerates.

HSBC has cast its vote. It clearly believes that it’s going to be getting more gold from the COMEX, maybe a lot more, and it’s making room by giving the boot to other depositors. Perhaps the bank knows something we don’t know, or perhaps it’s just acting out of reasonable expectation.

Either way, it’s telling us that the demand for gold is going to continue rising. And coming from a major bullion bank, that’s about as bullish a signal as anyone could want. If you don’t own any physical gold, it’s time.

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