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Tom Cloud: Wholesale Gold Inventories Evaporating
In this week's interview with gold dealer Tom Cloud of National Numismatic Associates, we cover one very timely topic - the sudden decline in gold inventories - and one perennial question - how can an individual put physical precious metals in an IRA.
DollarCollapse: Good to talk to you again Tom. Let's start with your observation that the major gold wholesalers don't seem to have their usual level of inventory. Why the sudden tightness?
Tom Cloud: Of the seven or eight major wholesalers that send me price sheets, almost every one is having supply issues. Some [coins and bars] I can get right away, but most take between a few days and two weeks.
The wholesalers don't necessarily know why this is, but some speculate that the 58 tons that China's central bank purchased in September was responsible, and that [the Chinese] purchased at least that much more in October. When a big seller elects to sell something they don't even put it in the market any more, they just call up China's central bank, and we see the report four weeks later, if we see it at all.
And it's not just China. Central banks in general are buying. Until 2011 central banks were selling gold but in the last two years hardly any are selling and many are buying. I've been doing this for 35 years and last month made my first sale to a central bank.
Another factor is the new Basel III agreement in which gold counts for what it's worth rather than 50% of what it's worth, which makes it a more attractive asset for banks. And the final factor is that more Americans are moving into metals, which is producing more small orders to go with the big orders from central banks. It's different for each wholesaler, but the overall effect is to tighten inventories.
DC: That's great news for gold bugs. Now, for those who have money in an IRA and want to convert some of it to bullion, how can they do that?
TC: We're starting to see people actually move physical gold out of these ETFs. GLD, for instance, has been trading at a big discount. Why would GLD be selling at a discount if there wasn't anything wrong with the fund? Of course there's plenty wrong with it, as Andrew McGuire has testified.
Instead of bullion ETFs, a lot of people are choosing to set up self-directed IRAs that can hold bullion directly. The first step is to find a government-approved custodian. There are ten or eleven out there but I find the two most user-friendly to be Sterling Trust and Goldstar Trust . You get an application online, along with a rollover or transfer form, fill these out and submit them, and your existing IRA is transferred to the custodian. Then you use those funds to buy metals and have them stored.
You have two fees per year: a custodian fee of around $75 or $80 annually, in return for which they send you quarterly statements and 1099s for the years when you take a distribution. Then you pay the depository, generally Delaware Depository Service Corporation (DDSC), which stores the physical metal in your allocated account, with your name on it. Their fee is $125 per year for anything between zero and $100,000. For example, if somebody transferred $20,000 into a precious metals IRA then they've got about $200 in fees, or about 1% a year. The more you have the lower the percentage would be. When you get to $100,000 they'll charge 60 basis points on each dollar after that.
DC: Can you deposit your own bullion in this kind of an account?
TC: Yes, but the amount has to be below what you can put into an IRA in that year. The amounts differ for SEP and traditional IRAs.
DC: What if you want to take possession your metal?
TC: They'll deliver it to you. If you're old enough to take IRA distributions there would be no penalty but it would be taxable and they'd 1099 you. Here's an interesting point: Many dealers will pay above spot for Gold Eagles and other major coins and bars. So let's say you want to liquidate five gold eagles. You can ask the custodian to convert them to cash at spot and send you a check. Or you can take delivery and sell them yourself for the extra 2%.