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STORING BULLION


There are several ways of storing bullion, both physical metal and metal held with a third party.


Keeping it at Home

For smaller quantities many people choose to take full possession of the metal, which can be easily handled and hidden somewhere in your home, either in a safe, concealed inside a false wall or secret cupboard, or even buried in your back yard!  This makes your precious metals easily accessible should you need to trade them for any basic necessities in times of trouble.

It may therefore be prudent to:-

  • Divide up your bullion holding and conceal in different places.
  • Choose a place that is not obvious to any burglars.
  • Remember that precious metals could melt if your house has a severe fire.
  • Not tell anyone about your precious metals, not even your friends as most thefts are usually linked by a common denominator

Naturally, there are also disadvantages to this form of storage in that it is a potential security risk, could either be forgotten about altogether, you may not remember exactly where it has been hidden, or if something should ever happen to you, would anyone be able to trace it?  In addition, precious metals could melt if there was a severe fire on your property.

The wonderful thing about precious metals is their intrinsic value, which is easily identifiable and would even be exchangeable for goods and services in deeply troubling times and a couple of kilos of gold would not be difficult to take with you should you need to flee from political turmoil or natural disasters.  Because precious metal (notably gold and silver) is a currency in its own right, it can also be easily exchanged with other currencies should you need to cross the border into a neighbouring country.  A fairly grim picture has been painted here, but it may happen.


Safety Deposit Boxes

One method of storing your bullion is in a safety deposit box held within a bank.  However, because all things are never equal, there is a downside to bank storage in that should any government decide to confiscate private gold held by any person, as has happened in the United States past, see The Roosevelt Gold Confiscation Order Of April 3 1933 (Executive Order 6102), it would mean by law that there would be a freeze on all safety deposit boxes (and indeed, any gold held within the jurisdiction of the Government) until they have been checked and cleared and therefore owners would not have access to their holdings.

You can read the BULLIONMARK article that explains why confiscation of physical gold in Australia is very unlikely.  There is also another cause for concern in that if your gold is held within a bank, and the bank becomes insolvent, or ceases trading for whatever reason, you may find it difficult to gain access to your safety deposit box, as you would most definitely not have the keys to open the doors to get into the bank, let alone opening your deposit box! Although the property within the deposit box will remain your property, it could take weeks, months or even years should the worst case scenario occur such as widespread banking failure, affecting several major banks and financial institutions and their doors would close indefinitely, literally overnight!  One further thought - if and when the bank does eventually re-open its doors, there is no guarantee that the contents of your safety deposit will remain intact because there is never any 'proof of contents' established with this method of storage.

It would therefore be a good idea to consider the following:-

  • Find a good solid bank that can weather a financial 'storm'.
  • Always monitor any governmental trends and economic influences.
  • Try to find a safety deposit box in a company that is not exposed to any financial risks, which could cause them to foreclose on you.
  • Try to find a safety deposit box, which has 24-hour access throughout the year.
  • Make sure that the safety deposit box you choose is not too great a distance from your home.


Storage with a Bullion Dealer / Organisation

There are a lot of bullion dealers or bullion organisations that will hold your bullion metal in their vaults on your behalf for a small storage fee, the main advantages for holding your bullion with these entities are firstly, the security issue rather than keeping it at home; secondly, that it would be easy to sell your bullion into the market place if it is already held within the vault of the dealer and thus eliminates the risk of transportation between your home and the bullion dealer.  In some cases, you may have to provide your own insurance for the storage.  Also note that some of the smaller businesses may open during public holidays and possibly outside normal office hours, if pre arranged and at additional cost.  There is one notable advantage to storing directly with a bullion dealer/organisation, in that they know exactly, the origins of their bullion.  Provided the bullion remains in their possession, it can then be easily sold back to the supplier without the need for assay


Allocated Storage

When you opt for allocated precious metal storage, you are placing your physical bullion metal into storage.  Your bullion would remain segregated from everyone else’s bullion, and your parcel would have all your details attached to it.  Your account would show how many ounces of which metal you own as well as any serial numbers that are stamped onto the bars.

This type of storage is the most secure, as there can be no claim on the metal from a third party unless you yourself have become insolvent or bankrupt, for example, when a claim could be made directly against you and your assets.  When using an allocated storage facility with a bullion dealer, safety deposit box or some other service provider, you should always check that there is an insurance policy provided on your bullion, and contact the insurance company to confirm that the insurance policy is up-to-date.  You may consider providing your own insurance to cover not only theft, but also against natural disasters and even acts of terrorism.


Unallocated Storage

This is a service provided mainly by bullion banks; however there are some Mints and financial institutions that provide the same service.  Precious metals are purchased on your behalf at a mutually agreed spot price.

As the bullion has not been allocated to you specifically, you do not own the bullion and the transaction becomes a promise to supply you with a generic quantity of bullion as and when you request it, at the current market value.  In other words, the money you used to originally buy the bullion has technically become a loan to the holder of your unallocated precious metal bullion.

What you must bear in mind however is that by choosing unallocated storage, you will effectively become an unsecured creditor to the institution you are dealing with.  It would therefore be prudent to do some careful research beforehand on the storage institution because, should they ever become insolvent, you may run the risk of losing your investment and should there ever be a real shortage of physical metal in the market place and you decide to take delivery of your bullion, you may find that you would have to accept a cash settlement as there would be limited, if any, bullion in the market place to deliver.  However, in the case of The Perth Mint certificate program (PMCP), it is fully backed by the Western Australian Government, whose economy is largely based on the resource sector (note: you can also opt for allocated storage with the PMCP and for disclosure purposes, Bullionmark markets and distributes the Perth Mint PMCP program).  The best thing about an unallocated account is that it is easy and cost-effective to buy and sell your bullion holding.


Pooled Accounts

A pooled account is an account which has all the gold held in mass quantity as a single holding, and each precious metals investor owns a percentage of the holding.  This process minimises administration costs, thus minimising the cost to the investor, and because gold is a fungible commodity, it doesn’t matter how the gold is held i.e. 400 ounce bars, so long as it has the same weight and purity equal to the accounts held by the investors.

This type of holding could be held in a secure vault anywhere in the world, and there could be a cost imposed should you wish to take physical delivery.

There are two types of pooled holdings - allocated pool account and unallocated pool account:-

  • Allocated pool account means that an investor owns a percentage of all the physical metal held collectively within the vault.
  • Unallocated pool account means that an investor owns a percentage of a paper contract issued by a financial institution/bullion bank.  You, as an investor, would therefore be an unsecured creditor to the financial institution/bullion bank, not a direct owner of the metal itself, leaving you exposed to any economic turmoil.  A disadvantage is that you may find it difficult to convert your account into an allocated account or take physical bullion should there be a shortage of physical metal, and generally speaking a cost would almost certainly be administered.


Disclaimer
This information is provided for general information purposes only.  Please seek independent professional advice. Content views and opinions may be sourced from a third party.  BULLIONMARK does not guarantee the accuracy of this information. BULLIONMARK accepts no liability for any loss incurred as a result of this information.  For more please read our terms and conditions or contact us.

 


   
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