Gold Buyer's Checklist
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.
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