In a world of black box trading, derivatives, flash crashes and people causing a credit crisis by creating assets they don't really understand out of other assets they don't understand at all, it can almost make one feel nostalgic to hear about bankers doing what used to be known as banking. In some cases, that could be taking deposits and loaning that money back to people to buy homes or finance businesses. Sometimes it could mean holding on to something dear, like family heirlooms in a safety deposit box. And, at times, it might mean holding on to something very dear, like tons and tons of gold.
JP Morgan is one firm cashing in on the recent rise in gold, not by investing or creating derivatives, but by vaulting services. At times, vaulting is not viewed as a very profitable business as banks typically only receive a percentage of assets under protection. When gold is not that expensive, it is just not that lucrative to take up the space to store it. Indeed, JP Morgan, despite holding gold for certain clients, including ETFs, for some time, actually shut down a vault in the 90's when prices were lower. Other historic vaults have apparently been put to alternative uses, such as steakhouses. However, as the price of gold (as well as other precious metals) continues to rise, the margins that banks with vaulting services gain by storing those metals are increasing to the point where many banks are seeing green in gold.
It is this potential for relatively passive income that has caused JP Morgan to dust the cobwebs off of its aforementioned and currently empty underground storage area in New York. It hopes to attract some of the 30,000 tons of gold (1/6th of the world's supply) currently held by private investors. Although ETFs backed by the metal have provided a floor for prices with consistent buying, it is estimated by many that it is private investors who have really increased purchasing over the past few years. These so-called gold bugs have been piling into the commodity as an inflation hedge, likely a smart strategy so long as the reserve currency of the world continues to be printed as quickly as if the end result weren't worth the paper it was printed on.