Insuring Gold Reserves Just Got Even Harder amid Rising Price

Updated by Gerelyn Terzo
In Brief
  • The increase in the price of gold this year has caused an insurance crunch for storage companies.
  • Rising gold prices create a need for new and expensive vaults.
  • Bitcoin can be stored cheaply and offers liquidity advantages as well.
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Some of the largest gold storage companies in the world are facing an insurance nightmare. As the price of gold increases, the amount that can be stored and insured at any single location has fallen, forcing companies to juggle gold bars, according to a Bloomberg report.

The problem isn’t space—there’s plenty of space to house all the world’s gold. The problem is the insurance. One Lloyd’s underwriting company, QBE European Operations, is reportedly willing insure up to $150 million in gold in any single vault, but not more than that.

As the price of gold increases, the amount of gold that can be stored in any location declines. This means holding companies must move some of that gold to a different location in order to insure it.

Insurance crunch

Larger holding companies, like some of the world’s largest banks, don’t mind the insurance crunch. They already exceed all limits, and carry the additional liability on their own.

But for smaller facilities, the cost to store the gold has suddenly increased dramatically. These firms must quickly act to build new storage locations for the bullion that they already have, if they’re to remain insured.

Plus, the cost of insurance rises as well. While the company may hold the same number of gold bars, the value of those bars, and the cost to insure them, has just skyrocketed.

Gold Price Spread

Bitcoin FTW?

The cost to store gold has been high, given the spatial and insurance limitations. With the price increasing, those costs will only continue to increase. What’s more, those reserves offer almost no liquidity to those that hold them.

Interestingly, however, bitcoin offers a solution to both those issues. The value of gold stored in some of the largest holdings in the world could easily be stored in the form of bitcoin in a secure cold wallet.

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