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A nine-point checklist for secure gold
investment...
LOOKING TO buy gold today? Here's a nine-point check-list for
secure gold investment presented to this week's Investor's Chronicle
Gold Conference, hosted at the London Stock Exchange...
#1. Don't take it home, except maybe a
few coins
History is littered with sad stories of people who bought gold (rightly)
because they feared severe economic contraction in their home country, and
then made the mistake of holding their gold at home. When they needed it they
could not release its value because it had become contraband.
Think of Zimbabwe (now), Argentina
(2001), Yugoslavia (1990s), Vietnam & Cambodia (1970s), Nazi Germany
(1930s), the USA (1933), Russia (1917). Gold secures your wealth when it is
held in a reliable country. This is unlikely to be your own country if you
are wise to be buying gold.
2. Buy 'Good Delivery' fine bullion to
save 6-10% over coins & small bars
The world's best gold (assayed at 99.5% or better, and traded 100% 'fine' - i.e.
gross bar weight x assayed purity) has a rock-solid perpetual guarantee of
its quality and is, surprisingly, also the cheapest. Good Delivery gold also
sells for the highest prices. That's because Good Delivery bullion is the spot market standard and
is massively more liquid than coin markets.
3. Use allocated storage at a commercial
vault - not a bank
Persuading you to hold your gold 'unallocated' lets banks
finance their own liquidity reserve with your gold. It is so attractive to
banks that they significantly overcharge for the safer 'allocated' storage
option. So don't use banks to store gold. Instead, use fully allocated and
insured commercial vaults; they don't have a liquidity reserve requirement,
and therefore have no motivation to overcharge for allocated.
The wholesale storage rate (including
insurance) is about 0.1% per annum in a commercial vault. It will usually be
many times that much in a bank. BullionVault
charges 0.12% per annum, with a minimum of $4 per month.
4. Direct overseas ownership
Don't get caught out by a trust deed or vault in the wrong jurisdiction.
Think about exchange controls. In a world of severe economic
contraction, you would almost certainly still be able to travel (if you can
afford to buy the ticket), enabling you to physically collect your gold and
realize its value outside controls in your home jurisdiction. This is why
direct overseas ownership often works better than ownership through a trust. An
intermediating trust deed could result in the ownership of gold effectively
being trapped in the country where the trust was set up.
5. Avoid certification. Insist on
regular publication of bar lists & reconciliation
There are two big problems with gold certificates. Firstly they convert your gold into a
security, i.e. the certificate becomes the thing you own, not the gold
itself, putting the issuer between you and the gold, which means the problems
of trusts apply again. Gold is a tangible good, so it does not need the
complexity of being wrapped as a security. You can own the stuff itself, and
involve no-one else in your title.
The second problem with certificates is
that there's no way of knowing how many certificates have been issued, which
is a threat to your unique ownership. Modern technology can help here, by
allowing you internet access to view the register of all owners. BullionVault is the only custody service in the world
which publishes - every day - bar lists reconciled to individual private
holdings. You can see the public evidence of your holding, reconciled to the
current bar list; our central register defines who owns what, and eliminates
the possibility of double counting. But however you choose to buy gold, check
your metal is separately identified on the reconciliation.
6. Make sure ownership records are
independently audited
You want the auditor, and not the service provider, to vouch
for how this thorough study reconciles your ownership records with the
physical property. See that the bullion is checked and reported on annually
by a qualified assayer.
7. Consider your crisis response
Could you effect a rapid location switch and/or
international shipment? Currency crises blow up with alarming speed. Gold
stored via a stock-exchange traded instrument (such as a gold ETF
) is not particularly
mobile. There will usually be only one vault in one jurisdiction storing all
the gold. The problem is that trading out of that jurisdiction requires a
three-day stock exchange settlement period, after which your stockbroker will
send your money to you, probably incurring another few days' delay.
You may
well be safer if you can either instantly sell your gold and buy in another
physical location, or ask for your gold to be shipped. Both of these are
simple transactions on BullionVault. The first you
can do on-line. The second takes advantage of the fact that Bullionvault's vault operator routinely transports bullion from one
international vault location to another. The shipment can be arranged without
the bullion ever leaving the control of the commercial vault operator, which makes
it much easier and cheaper to set up - fast.
8. Right
to withdraw for personal possession
If you choose the cost-savings, liquidity and security of using safe custody,
you must also retain the right to withdraw your property in full. All BullionVault customers have the right to take possession
of their gold. Each gram is physically present in the vault of their choice,
available for withdrawal.
9.
Liquidity - look for 24/7 trading; don't rely on just one
counterparty
Gold is not like a stock-market share. Most stocks only move when their local
market is open. Gold moves all the time. Since price action occurs during
Asian, European and American market hours, you should be able to act when the
price moves, too. So you need a marketplace which stays open.
Bullionvault is currently the only gold market in
the world which is open 24 hours a day, 7 days a week. On BullionVault,
users also quote their own prices. So there are thousands of counterparties
free to quote to you, and to whom you can freely quote your own price.
One-counterparty
systems, in contrast, force you to sell your gold back to the system
operator. This eliminates competition and allows the provider to quote wide
spreads. Whereas free competition on price massively reduces the cost of the
spread.
Paul Tustain
Director and Founder
Bullionvault
Also by Paul Tustain
Paul
Tustain is director and founder of Bullionvault - the world's fastest-growing gold
ownership service, where you can buy gold today vaulted in Zurich on $3 spreads
and 0.8% dealing fees.
Please
Note: This article
is to inform your thinking, not lead it. Only you can decide the best place
for your money, and any decision you make will put your money at risk.
Information or data included here may have already been overtaken by events
– and must be verified elsewhere – should you choose to act on
it.
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