Companies that operate storage vaults for precious metals are seeing a surge in business from existing customers as well as new investors seeking to take possession of the physical metal amid worldwide economic turmoil.

In some instances, the operators of storage facilities have had to add to their storage space and workforce to accommodate the increased business.

The storage facilities provide security, for a fee, for holding precious metals and other valuable items in vaults, for as long as a contracted customer needs. The precious metals held may be for investment or placement in IRAs, or from commercial customers and other entities. To perform some services, the storage facilities may have to be approved and licensed by one or more metals exchanges, such as the New York Mercantile Exchange, to serve the exchange’s customers, and must meet the criteria for a particular service established by the licensing agency.

Licensing of the bullion storage facilities for New York Mercantile Exchange metals is overseen by such entities as the Commodity Futures Trading Commission. Facilities storing precious metals for inclusion in IRAs must by IRS-approved.

Generally, the metals are segregated by customer account so that the bullion in one customer’s account is not co-mingled with that in another. Licensing standards may require this segregation of bullion.

Services offered vary from firm to firm.

Michael B. Clark, president of Diamond State Depository LLC (www.diamondstatedepository.com/) in New Castle, Del., said he does not believe the surge in precious metals prices or the demand for the metal, especially gold and silver, will abate anytime soon. Diamond State is an independently operated subsidiary of Dillon Gage Metals (www.dillongage.com).

Clark said April 26 that Diamond State has sufficient vault space for expansion as customers’ storage needs grow. While 80 percent of Diamond State’s accounts are for individuals, the remaining 20 percent comprises 80 percent of the worth of the precious metals stored.

Accounts include commercial customers who trade metals on the various worldwide exchanges, metals being held pre-refining and metals stored for inclusion in Individual Retirement Accounts.

Clark said multiple conditions are driving precious metals prices higher and increasing the need for further metals storage:

? The threat of inflation.

? The U.S. debt and deficit spending.

? Sovereign debt in Europe.

? Political upheaval in the Middle East and northern Africa.

? Disruptions in the world’s oil supply.

? Increased precious metals demand from India and China, both personal and industrial.

Unless all of the aforementioned economic conditions are changed, Clark says precious metals prices, especially for gold and silver, will continue on an upward track.

As a manager of a bullion depository, Clark said, he is already thinking six months ahead for additional vault and office space expansion to accommodate new and existing customers.

With the collapse and reorganization of major brokerage houses, Clark said many investors have lost faith in having their investments strictly in the form of a paper receipt or on some company’s balance sheet. They want the assurances and the security of knowing the physical metal is actually there rather than having to depend on a firm’s financial strength, Clark said.

First State Depository LLC

The First State Depository LLC (www.fsdepository.com) in Wilmington, Del., not only stores precious metals, but is also the largest holder of new Iraqi dinar-denominated currency awaiting revaluation, currency that currently is valued in the trillions of dollars, according to Robert L. Higgins, First State’s chief executive officer.

Higgins said April 26 that the number of first-time institutional, commercial and individual investor customers for the firm’s rare coin and precious metals bullion custody services have skyrocketed over the past two to three years.

Many of the new customers need storage for their individual storage accounts for IRAs, Higgins said. Customers putting precious metals in IRAs cannot take physical custody of the metal. An IRS-approved custodian can offer the IRA and maintain the paperwork; the metal is purchased from a second entity and is then stored at a third entity, Higgins said.

In recent trading, Higgins said he has seen potential customers who have procrastinated finally entering the market, existing customers significantly increasing their positions individually, and individuals pooling their resources into a consortium for acquiring metals for storage at First State.

First State will store anything of value that needs a high level of security, Higgins said.

Delaware Depository Service Co.

Also located in Wilmington, Del., Delaware Depository Service Co. is wholly owned by FideliTrade Inc., based in Wilmington.

Jonathan B. Potts, president of FideliTrade Inc. and managing director of Delaware Depository Service Co., said the depository service just added a fifth storage facility. One of the five facilities also houses office space for the company, Potts said. The firm stores gold, silver, platinum and platinum group metals in bar form, coins where applicable, casting grain, sponge (for platinum-group metals), as well as certified, encapsulated rare coins, Potts said.

Delaware Depository Service Co. has increased its storage business for customers opening new accounts for metals intended for inclusion in an IRA, according to Potts.

Manfra, Tordella & Brookes Inc.

Manfra, Tordella & Brookes Inc. (www.mtbcoins.com) in New York City buys, sells and stores precious metals — gold, silver, platinum and palladium — whether in coin, bar, or any other form. An MTB spokesman said the firm has sufficient vault space to handle any customer’s storage needs.

APMEX

In addition, some sellers of precious metals have seen such an increase in sales that they, too, have had to add to the their staffs to help package and ship the bullion products purchased.

Michael Haynes, chief executive officer of the Oklahoma City, Okla., Internet bullion firm American Precious Metals Exchange (www.apmex.com), said bullion sales have more than doubled over the past year, especially for silver products.

For the first quarter of 2011, sales are expected to reach 250,000 to 300,000 packages totaling 10 million to 15 million items, versus 150,000 packages and 7.5 million items for the same period in 2010, Haynes said.

More of the investments are being made in bullion coins, such as American Eagles, Canadian Maple Leafs and other popularly traded bullion coins issued by a government, instead of bars, Haynes said.

As a result of increased sales, the firm has increased its sales force, as well as its accounting, order processing, shipping and other support staff, Haynes said. APMEX has also doubled its vault storage capacity situated underground in a former Federal Reserve Bank branch facility in downtown Oklahoma City, Haynes said. ¦