Commodity Online
DUBAI: All the gold of Dubai that is held in the vaults of various banks in London is coming back to the City of Gold.
The Dubai Multi Commodities Centre (DMCC) has opened new vaults to store the gold reserves in Dubai, currently being looked after by central banks in London.
DMCC officials disclosed that DMCC vaults will be a home to the gold allocated to the Dubai Gold Securities (DGS) Exchange Traded Funds (ETFs). The vault may also become a natural choice for storage of gold reserves by central banks in the Middle East bullion market.
At present, gold allocated to DGS is kept at HSBC’s vaults in London and gold reserves held by GCC’s central banks are held by various other vaults in London. London has been home to safe and secure gold vaults for more than a century.
The new gold vaults at DMCC became operational in April. DMCC officials said that the gold held under DGS ETFs at the HSBC vaults in London will be bought to Dubai soon.
Dubai Gold Securities listed on Nasdaq Dubai in March. Each security represents ownership of 1/10th of an ounce of gold and is expected to initially trade in increments of $0.10.
HSBC has been storing gold bought by investors, charging 0.4% of the value a year. The price of Shariah compliant Dubai Gold is determined by bids and offers and is designed to follow spot gold prices.
Initially, a creation basket of 50,000 shares will be issued and up to one billion shares can be issued, according to market demand.
Liquidity for Dubai Gold is backed by the London OTC gold market. Mac Capital has said it 'believes that Dubai Gold makes a sound addition to an investment portfolio'.
The recently-launched Dubai Gold Securities offers investors Shariah-compliant access to gold bullion investment without the additional costs normally associated with insuring, storing and transacting in physical gold.
And, Shariah-compliant gold funds are offering better returns than the other funds as investment in the yellow metal has lifted its price by multiples of a thousand dollars, according to the managers of Shariah-compliant funds.
After the launch of Dubai Gold Securities at Nasdaq Dubai on March 2, the World Gold Council (WGC) had said that cross-listings of the product is being planned on regional markets.
WGC now thinks that it can cross-list the product on other exchanges in the Middle East, particularly in Saudi Arabia. As part of the WGC strategy for exchange traded gold, it has key partners worldwide. WGC can use them to cross-list the product.
Each security is 100% backed by physical allocated gold held in safekeeping by an independent custodian. One share represents an initial interest of one-tenth of a fine troy ounce of allocated gold bullion.
The current wisdom for central banks is that if they have more than 20% of their reserves in gold, they are overweight. Central banks with low reserves of gold are looking forward to increasing their reserves. They are trying to analyse what the right balance should be. They are getting aggressive. And this includes the banks in the Middle East and in the Bric countries, the WGC said.
In contrast, some countries hold 80%-85% of their reserves in gold. This includes Switzerland. The US Central Bank also has a high gold reserve. These banks also need to readjust their strategy.
Dubai also hosts gold futures trading at the Dubai Gold and Commodities Exchange (DGCX). The state-run DMCC holds a majority stake in the DGCX.
According to a WGC report, gold investment in the Middle East jumped 38% in 2008 compared with 2007’s fourth quarter. Saudi Arabia saw a massive 300% jump in investment demand, Egypt 67% and other Gulf countries registered a 2% increase.
According to the WGC, several Middle East nations including Dubai are going to be action centres for gold investments.
A Shariah Supervisory Board has been constituted to supervise the issuance of Dubai Gold Securities and will conduct regular physical inspections of the gold held on behalf of investors.
DGS’s listing on Nasdaq Dubai follows the successful listing of similar bullion securities products on a number of stock exchanges around the world, including the NYSE Arca and London Stock Exchange.
Currency devaluations have particularly shifted the focus to gold. Printing more paper is eroding confidence in it. So, not only gold, but every hard asset is becoming more reliable. Gold especially has attracted a lot of investments.
Gold occupied five per cent of above ground financial asset in 2008. It occupied 22 per cent of it in 1982.
Saturday, 30 May 2009
Dubai to get back gold reserves from London banks
2009-05-26 17:05:00
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