For those new to precious metals, this guide
put out by Global Precious Metals out of Singapore is straightforward and
draws attention to a number of important things to consider when buying and
storing precious metals, with little bias to their own offering. Plus
you don't have to provide an email to access it, like many free guides
require (h/t Bullion Baron for tweeting
about it).
I've met Vincent and Nicolas (on an introduction from Grant Williams, who
is a Non-Executive
Director in the business) and these two guys know their business. You may
be surprised why I'd mention/recommend a competitor, but at the Perth Mint we
believe in diversification of your holdings and know many of our larger
clients hold precious metals in multiple locations, so I don't think there is
any point trying to "keep" all of a client's business to yourself,
against their own interests. Vincent has a handy diagram
to illustrate location diversification (although of course I'd add Perth as
one of the stable safe jurisdictions).
I'd like to draw attention to Vincent's discussion about unallocated
accounts. He says "that most investors holding an unallocated
account are not aware of the true nature of such account" and I
certainly think this is true. Vincent advises that "if the account
documentation mentions insurance, chances are high that this is not an
unallocated account". I would also suggest looking for very clear
wording in storage agreements as to whether the metal is on or off balance
sheet of the provider, what they are doing with the metal, how it is stored
and so on. I have seen a number of unallocated accounts, usually offered by
small coin dealers, that are completely vague on this and that is a warning
sign. If the facility is not clear on exactly what they are doing, then stay
away.
That is why you'll find the Perth Mint is very upfront
about its unallocated and how it is different than the high risk fractional
stuff offered by banks. Vincent notes that "those offered by reputed
refineries are probably the safest option" as they are backed by
the inventory of the company but he also says that such facilities are usually
"only reserved for professional dealers (with the exception of the
Perth Mint". In the case of the Perth Mint, this will not
always be the case. Perth Mint stopped offering unallocated silver and
gold will eventually close to new investors as well, as there is only so much
metal we need for our operations (tip: you can tell something is not a Ponzi
scheme if they close it to new inflows).
Regarding ETFs, one point I'd add to Vincent's concerns is to look at the diagram he
has and note that the more people involved, the more fingers that can be
pointed when something goes wrong, a point I made in this
article.
One part I'd disagree with Vincent is on the London
Bullion Market where he says that "a run on the London Bullion
Market doesn't appear probable, but very likely", although I agree
investors should stay away from this market if they are buying gold as
insurance. I did a whole series of posts on the fractional
bullion banking system, starting with this
post, and whilst it is not easy going, it explains why this system has
defied claims that its failure is imminent. That is not to say that it is
safe and won't blow up, but the case for its instability is overplayed I
think when you look at how it works (and can be backstopped by central
banks, if they have the physical to do so) in detail.
