WSJ:Australian Exchange to Lure Investors With Gold
By ROBB M. STEWART
MELBOURNE—As Europe's sovereign debt worries and volatile global stock markets roil investors a new Australian exchange will next month offer a physical market in bullion to tap demand for safe haven assets.
Australian investors can already get exposure to gold through mining equities and exchange traded funds linked to precious metals but getting their hands on the yellow metal has largely been limited to commemorative and collectable coins despite the country ranking second behind China in annual gold production.
"Precious metals are seeing a renaissance in investment markets," said Thomas Coughlin, chief executive of Australian Bullion Exchange Ltd., or ABX, which is set to open Oct. 4. "If we weren't doing this, I'm sure someone else would be."
ABX will be Australia's first physical bullion exchange, offering an over-the-counter spot market for retail and institutional investors to buy and sell bars and coins through brokers. Investors can take possession of the metal, or store it in ABX's vault in Brisbane. The exchange has received interest and Mr. Coughlin says the exchange is targeting a number of large institutions.
Prices for precious metals, particularly gold, have risen as investors have shunned riskier assets. The spot price for gold has climbed roughly 42% since the start of the year, and touched an all-time high of US$1,920.94 a troy ounce on Sept. 6. A number of banks have recently raised their expectations for gold, with UBS earlier this month penciling in an average price of US$2,075/oz for 2012 and HSBC pointing to an average as high as US$2,025/oz.
Mr. Coughlin's goal of luring clients including the world's largest investment banks will depend on the continued rise in demand for gold as an asset class, which shows few signs of abating.
"Demand for gold bullion remains strong, bolstered by safe haven demands, particularly driven by the unfolding events of the euro-zone debt crisis," said Ross Strachan, commodities economist at Capital Economics Ltd. in London. "As we expect this situation to deteriorate further, this means that we continue to forecast gold rising above $2,000 per ounce this year and to rally to $2,500 per ounce in 2013."
Mr. Coughlin, who is co-founder and chief investment officer of investment advisory firm TRAC Financial Group Ltd. as well as a director at precious-metals treatment facility Australian Bullion Refinery Ltd. and bullion dealer Bullion Capital Ltd., said the exchange is outside the financial system and holds its bullion locally, both positives for investors concerned about risks to the global banking system.
In New Zealand, where investors have traditionally put money into real estate rather than precious metals, the New Zealand Mint opened a bullion exchange in 2009 that buys and sells pure silver and gold, although primarily deals with retail buyers.
"When I started six years ago, we were selling the same dollar amount a month as we now are in a week," said Michael O'Kane, head of bullion at the New Zealand Mint Bullion Exchange. The exchange now trades tens of thousands to hundreds of thousands of ounces of gold and silver a month, with a number of offshore buyers from the U.S. and elsewhere also seeking out the perceived stability of the island and its government, he said.
The Perth Mint, owned by the government of Western Australia state, last October launched a website selling gold and silver bars and coins with live pricing. Alexandra Lucchesi, a spokeswoman for the mint, said demand from collectors, gift buyers and institutional investors has risen steadily and sales are now close to 10 million Australian dollars, or about US$10.2 million) a month. The mint plans to extend its online service to international markets in the near future, but Ms. Lucchesi declined to say whether it would join the ABX.
The Royal Australian Mint, sole supplier of the country's coins, hasn't been approached to join the ABX, spokeswoman Michelle Nakamura said.
London-based BullionVault, an online gold market with vaults in the U.K. capital, Zurich and New York, set business records in August with more than 2,500 new clients world-wide, a spokesman said. Clients' gold holdings at BullionVault rose 20% during August to stand above US$1.42 billion, and the vaults were storing more than 24.3 metric tons, more than the central bank gold reserves of Canada, Hong Kong, Ireland and Qatar combined.
Write to Robb M. Stewart at robb.stewart@dowjones.com
