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By Peter Hobson
LONDON, March 27 (Reuters) - The five banks that clear gold
trades in the London market are considering expanding their
network of storage locations to other countries if it becomes
impossible to fly enough gold in and out of London, said two
sources involved in the discussions.
The move would be aimed at reducing the risk of disruption
if metal cannot reach London, the world's most important
physical gold trading hub, where trades are underpinned by metal
held in high-security vaults.
The five banks - HSBC, JPMorgan, Scotiabank
, UBS and ICBC Standard -
clear trades worth about $30 billion a day.
Lockdowns to contain the spread of the coronavirus have
already shut down several major metal refineries and most global
air travel.
This caused gold prices in New York and London to move
sharply apart this week as traders worried that metal couldn't
be flown from London to New York to settle contract obligations.
The London Bullion Market Association, which oversees the
London trade hub, on Friday said that it was looking with
clearing banks and other market participants at "the feasibility
of global delivery outside of London".
The clearing banks are preparing to accept gold at vaults in
Switzerland and elsewhere, the two sources said, adding that a
final decision had not yet been taken.
The plans could include vaults that the banks operate as
well as storage run by other companies, including refineries and
logistics businesses, one of the sources said.
JPMorgan, HSBC and ICBC Standard declined to comment.
Scotiabank and UBS did not respond to requests for comment.
The LBMA also said it was working with refiners, shippers
and banks "to overcome travel constraints and ensure the
physical movement of metal via, for example, chartered or cargo
flights".
Gold is typically transported in the holds of passenger
planes, most of which are no longer flying.
The LBMA said there was more than enough refining capacity
in the world to meet demand.
"While a few refiners have suspended production as a result
of COVID-19, the other good delivery refiners are ready and able
to accommodate the industry's needs," it said.
Good delivery refiners are those accredited by the LBMA.
There are 72 of these in 31 countries, supplying the vast
majority of the world's gold.
However, several of the most important of these refiners
have closed. Three in Switzerland - the biggest refining centre
- suspended production this week. Royal Canadian Mint also shut
temporarily and South Africa's Rand Refinery has implemented a
sharp reduction in output.
The supply disruption has coincided with a surge in demand
for gold, which is often bought as a safe-haven investment in
times of turmoil.
(Reporting by Peter Hobson
Editing by Mark Potter and David Goodman)
