WHY YOU SHOULDN’T USE BANKS FOR GOLD STORAGE
What about storage in banks? This is how the majority of investors who hold physical metals (or think they do) choose to proceed. Using a bank has a clear advantage: simplicity. It’s relatively simple and cheap to buy and sell gold through a bank, once you have jumped through the hoops to start doing business with them.
However, storing gold in a bank has two clear disadvantages. Well, they are clear to me, but apparently not so clear to the majority of investors!
* One, is that a bank is a bank is a bank, and one of the main reason for holding physical precious metals is being outside the banking system. So it kind of defeats the object to use a bank. If there is a “bank holiday” when all banks shut their doors (for example due to a currency crisis, or due to a collapse of the financial system due to cyber warfare) then you won’t be able to get your gold – period. And needless to say, that is when you would really need it!
* Secondly, the other thing that concerns me about banks is that they very often pledge assets or use unallocated storage, or both. So while they tell you you own a certain number of ounces or kilos in their vaults, they won’t be able to point specifically to a certain package and say “that’s your gold!” This is fine while everything is going well, but if the bank gets into trouble it will be a nightmare for you.
There are lots of other unpleasant things banks do you with their clients’ gold too. One is to outsource the storage to another bank (UBS, for example, does a roaring trade in storing gold for smaller banks.) This drastically increases your counterparty risk as you don’t even know who you are dealing with any more, nor in which vault nor bank your ‘physical’ gold supposedly is!
Worst still, banks pledge gold as security for other loans. It becomes almost like a fiat banking system, where gold is the currency but they can lend out more than they actually have, just like they do with dollars. If everybody asks for their physical gold at once, the bank goes bankrupt and legally what you have is nothing more than a claim against a bankrupt financial institution.
So, I wasn’t meaning to scare you too much, but by now I guess I have! Fortunately, there is a practical solution coming up.
WHAT ABOUT SAFE DEPOSIT BOXES?
Just before that though, let me touch on safe deposit boxes and why they are generally not such a good idea.
Good points about safe deposits are that they are outside the banking system, and that you don’t (yet) have to report any precious metals in safe deposit boxes because they are physical commodities you own and there can be no question of them being considered financial instruments.
The downsides are:
* Less convenience. You physically have to go and open the box if you want to add to your savings or liquidate some.
* The vast majority of safe deposit facilities in the world are run by banks. Since we want to be outside the banking system, we can generally rule those out. Those that are left, however, tend to be under the microscope of various governmental authorities since they are sometimes used by crooks, drug dealers or by unsophisticated local tax evaders. It’s a difficult business to be in. Metropolitan Safe Deposit in London got raided a few years ago (Google it for the full story if you want) and more recently “The Storage” in Hong Kong just decided there was too much pressure from the Chinese government so it closed its doors. It send a very curt, formal letter to box holders telling them to show up and pick up their stuff within a month otherwise their box would be drilled. Not exactly what you want just before the holiday season if you live on the other side of the world.
THE PERFECT SOLUTION?
The perfect solution, that checks all the boxes in my opinion, is run by a company called Global Gold. Based in Switzerland, they also offer storage in Singapore and in Hong Kong.
They will help you buy the gold – or silver, palladium and platinum. You agree a price with their traders, then wire them the money. If and when you want to sell all or part of your holding, you do the same procedure in reverse.
However, once the gold is purchased and stored, it is very clearly yours and only yours. You can choose and will know exactly what form your gold is in (different coins, different sizes of bars etc) and exactly where it is physically located. They offer the option of keeping it in a private safe deposit (a segregated box, not just a segregated holding)
If you want to pick up your metals at any time, you are free to do so. They can also arrange shipping to almost any place on earth.
Basically for me Global Gold check all the boxes. I might be biased because I’ve known them for years and regard the crew there as personal friends. Then again, you might value my recommendation and that long term relationship of trust I have with Global Gold. There are not too many companies I would put my neck on the line for, but this is one of them.
I suggest you decide for yourself. Check their website, http://www.GlobalGold.ch then talk to their CEO Claudio Grass, and tell him you are a Macfarlane Letter reader, and take it from there!
By Peter Macfarlane, international banking expert for Q Wealth.