I was getting ready to post an update on GoldMoney’s new service that allows customers to take delivery of their gold and silver in smaller, more practical bars. But Run To Gold’s Trace Mayer got there first, with an article that also explains the controversy now raging over whether mints and other bullion storage firms can be trusted. In a nutshell:
The Royal Canadian Mint, it seems, has misplaced $20 million of precious metals. Though probably (mostly) just a bookkeeping error, it has a lot of account holders wondering if their metal is really there, and has led some advisors to recommend that clients demand delivery of their bullion. Taking the other side of the issue, Kitco’s John Nadler labeled those advocating taking possession of stored bullion “saboteurs” and advised worried account holders to “get a grip”.
Mayer disagrees, and begins his rebuttal with a quote from GATA:
Yes, there well may be plenty of gold left at the Royal Canadian Mint, as was insisted upon, with great agitation and anxiety, by the paper gold marketer quoted in today’s Ottawa Citizen story, dispatched to you a little while ago — just as there may be plenty of gold left at Fort Knox. But those are not the most compelling questions. No, the most compelling questions are: Who really owns that gold? And how many people have claims to it?
Then he explains why this matters:
Gold is one of the most transparent of assets. Au, or gold, has the periodic number of 79, a boiling point of 2,856 °C or 5,173 °F, a standard atomic weight of 196.966569(4) g•mol−1 and is metallic yellow in appearance. On the other hand, the gold market is extremely murky with many shadowy characters lurking in the unsavory places attempting to place risky barriers between owners and their gold.
There are many untrustworthy agents which purport to help you answer the questions of how to buy gold or silver but really attempt to sell you paper silver and paper gold which, in many cases, is merely a form of fool’s silver or fool’s gold.
I have thoroughly reviewed the prospectus and found problems with the GLD and SLV ETFs and later found another problem with the GLD ETF where the 10-K precludes the right to audit physical gold inventories. There are other third-party storage services such as E-gold or the Perth Mint in Australia. But in July 2008 E-Gold pleaded guilty to money laundering charges in US federal court. As mentioned earlier, the nation of Canada’s Royal Canadian Mint withheld employee bonuses and sent in external auditors to determine the cause of a multi-million dollar ‘unreconciled difference’ between the financial accounting and the physical bullion.
The primary reason people own gold or silver is to reduce risk; counter-party, payment, performance, currency crisis, etc. At all times and in all circumstances gold and silver remain money. Gold and silver are insurance for when everything else fails.
What exactly should these ’saboteurs’ and those sadly misinformed souls who listen to them ‘get a grip’ on? I think some physical gold would be a good idea. After all, none of these issues matter until they are the only things that matter. Demanding physical delivery of physical gold or silver bullion is always a good exercise. It keeps the third parties and vaults busy, provides jobs and allows the owner of the bullion to have a cute piece of metal to pet.
On the question of where best to store precious metals:
When combing through a prospectus or user agreement the language to find should be extremely simple and clear. Here is an example from the GoldMoney User Agreement under VIII. Section E:
“A User may, by providing GoldMoney with delivery instructions, which instructions must be in the form prescribed from time to time by GoldMoney and the Vault, at any time request GoldMoney to change the goldgrams and silver ounces in his Holding into grams of gold or ounces of silver that are available for physical delivery to the User, provided that there are sufficient goldgrams and silver ounces to take delivery of a London Good Delivery bar of gold, which bar weighs approximately twelve thousand five hundred (12,500) grams, or bar of silver, which bar weighs approximately one thousand (1,000) ounces. GoldMoney will not charge a fee for its service, but fees may be charged by the Vault for acting on the delivery instructions.”
On 7 May 2009 they announced that “In conjunction with Baird & Co. customers can now redeem and take physical delivery of their gold in convenient units of 100 gram or one kilo (1,000 gram) gold bars.”
When I experimented with this option I received this message:
“Only Holdings with verified owners that are resident in the following countries can currently redeem bars: United Kingdom, Guernsey, Isle of Man, Jersey. We expect to make these bars available to all of our customers in June 2009 after the initial trial launch has been completed.”
I am excited to see the ability to take physical possession at any time of gold in smaller amounts than 400 ounce LBMA bars. This is an example of what to look for in the language of the legal documents of the third-party service you use to store your physical gold or silver bullion.
I agree on all counts: Taking delivery of physical gold and silver is good for both the individual and the system. And all allocated storage services are not created equal. Some hold verifiable, unencumbered metal, while others may not. So before you commit capital to something that purports to be “risk free” like allocated storage, read the prospectus and make sure the metal is there, and available on demand.
Mayer has a new book, by the way: The Great Credit Contraction, available as an eBook download.
