Storing Bullion

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

IntroductionDepending upon your own opinion of the economy in general, you may feel that the global financial system is robust enough to withstand any major downturn in the economic future and you therefore probably feel confident enough that the financial system can provide a safe environment for your fiat (paper) money. However, to be aware of any risks will afford you the wisdom to seek sanctuary. Investing in precious metals may appear to be a somewhat unusual thing to do for some, however many people do decide that this is an option they would like to pursue in order to safeguard a proportion of their wealth against any monetary problems, such as inflation. If you fall into the latter group, you would be wise to locate and research a safe method of storage. A good idea might be to diversify or divide your bullion holding with various reputable and recognised storage facilities, in order to spread any risks that may arise.Trading gold and silver bullion is similar to trading a currency, whereby you can purchase your bullion just above spot price however, when you decide to sell your bullion, the metal will normally be purchased from you below the market spot price and in some cases, the bullion may also need to be assayed. This is a similar process to when you go on holiday, for example. When changing money at a Bureau de Change, you will never get a market price for the currency you are exchanging and sometimes, there may even be a fee associated with the transaction.In addition, there is usually a fabrication fee levied on newly minted physical bullion precious metal, because there are always costs associated with producing bars/ingots and coins, such as labour and machinery costs. The difference between the purchase and sale price, as well as any fabrication costs on new products; is how the bullion dealer makes their money on the transactions.

Contents
Storing Your Own Physical Bullion and Coins - Keeping it at Home - Bank Storage - Safety Deposit Boxes
Storing with a Bullion Dealer/Organisation - Overview - Allocated Storage - Unallocated Storage - Pooled Accounts - Allocated Pooled Account - Unallocated Pooled Account

Storing Your Own Physical Bullion and Coins

Keeping it at HomeBy far the best way to store and own your bullion is to take full possession of the metal if you have purchased a small quantity, 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.
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Bank StorageThere are two different ways of placing your money into a bank, which may be simply explained in the following examples:-
When you deposit money into a bank account, you are handing over your property into the care of the bank, who then have the right to use your money in terms of the working capital of the bank. Your money becomes the bank's property, but also its liability. The bank also reserves the right to loan this out to other customers. You have therefore loaned your money to the bank and become an unsecured creditor, until such time as you claim your money back by withdrawing it from your account. This is a common practice which, for the most part, seems to work rather well. However, should the bank run into trouble, or even become insolvent, under banking law it becomes the client's 'own commercial error for investing in a bank account' and let's face it, the banking business is just that, a business.
If you were to place your money into an envelope and hand it over the counter at the same bank, asking the cashier to store the envelope in the bank's vault for safe custody, you would find that there would be an annual storage charge for your money which remains sealed in that envelope and the bank has no claim whatsoever on your property. Should the bank become bankrupt, your envelope containing money would still remain your property and no-one would have any claim on it but you. It is worth noting that the bank is not necessarily responsible for any insurance on your envelope & money and can decline any claim you may have should your envelope be stolen or the bank suffers a fire etc. The bank's obligation is to store your money envelope under lock and key only.
The above principles may also be applied to precious metals storage and it would therefore be prudent to pay close attention to what type of storage you decide to use.
It is however, worthwhile recalling what occurred in Argentina between 1999-2002 with the economic crisis faced by that country. In 1999, Argentina's GDP dropped 4% and the country entered a recession. Argentina quickly lost the confidence of investors and the flight of money away from the country increased. At its peak in 2001, people fearing the worst began withdrawing large sums of money from their bank accounts, turning pesos into dollars and sending them abroad. The government then enacted a set of measures (informally known as the corralito) that effectively froze all bank accounts, allowing for only minor sums of cash & holdings to be withdrawn. Many banks closed their doors entirely. Because of the allowance limit and with the serious problems it caused in certain cases, many Argentines became enraged and took to the streets of important cities, especially Buenos Aires.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 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.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.
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Storage with a Bullion Dealer / Organisation
OverviewThere 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.

It may be prudent to check into any bullion dealer that you plan to use, as follows:-

1. How long have they been in business?
2. How long have they traded at their current address?
3. Are there any legal issues currently outstanding with the bullion dealer?
4. Try to talk to any other customers that use their service.
5. Is your bullion insured? (always contact the insurance company to confirm that the payments are up to date, or provide your own insurance, and always make sure your covered)
6. Always check documents / receipts on your holding, including serial numbers, that they match up with your bullion.
7. Is your metal segregated from everyone else’s metal? (see below)
8. Always compare their storage and buy/sell prices with other bullion dealers for comparison.
9. What are the charges should you wish to take delivery of your bullion metal?
10. Keep in touch with your bullion dealer, and check on the above comments.
11. Check whether the bullion can be sold back to the dealer without the need for assay
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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.

A few things you need to consider about allocated storage:

Always contact the company and check their integrity and services.
Check the term and conditions of storage
Check for insurance, and the terms of the insurance, as well as the integrity of the insurance company. It is also advisable to consider raising the value of your insurance policy as the price of the metal increases.
Try to find a storage facility close to where you live, or at least located in a country that has a stable political and economic situation.
Try not to tell too many people about your bullion holding in order to ensure your own personal safety. Only give out this information to your most trusted confidantes.
Try to avoid removing your bullion from a recognised bullion storage facility unless you plan to have it transported to a similar fully recognised storage facility administered from within the industry. Basically, try not to break the 'chain of integrity'.

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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, or spot price. 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. One of the good things about this system is that there are no storage fees incurred, as there is no specific bullion to store. However, when you decide to take delivery of bullion, you will incur a charge for converting from ‘unallocated’ to ‘allocated’, or physical, bullion. This service can be a cheaper alternative, because selling your bullion can be carried out easily and as this is only a paper transaction, there is no physical metal to sell.

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). The best thing about an unallocated account is that it is easy and cost-effective to buy and sell your bullion holding.

The question is, are you comfortable with possible risks involved in this type of transaction?
Things to consider with this type of bullion trade:-
This is a financial vehicle for trading bullion, not a storage facility for your physical metal.
Taking delivery of your bullion in troubled times may prove difficult if not impossible should there be a shortage of metal in the market place.
You are entrusting your money to a bank or institution; effectively you have become an unsecured creditor (you have loaned your money) to that financial organisation/institution.
Participating in this kind of trade tends to create a misleading impression of the bullion market, where the distinction between physical metal and paper metal becomes blurred. GATA (Gold Anti Trust Action) committee have done extensive research into this problem, you can find out more by going to www.gata.org.
Should the financial institution become insolvent, there is a risk that you could lose your investment, which is money you have loaned out, and let’s face it, they will not tell you if they are in trouble, so be diligent.
Should the economic system become fragile, you may decide that having the physical metal may have a greater value than paper money in a financial crisis, which could preserve your purchasing power.
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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 ie. 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.

Things to consider:-

Consider opting for allocated accounts rather than unallocated accounts.
Always check into the integrity of the company providing you with the service, and try to find out about other investors opinions if possible.
Check for any insurance protection on allocated accounts. Is it possible to take physical delivery, and what are the costs that you would be expected to pay?