There are only two ways to buy physical gold - buy it and store it yourself, or buy it and have someone store it for you. So it is obvious that storing metal is an important part of the buying process. Consequently, I am often asked about storage.
Storing gold at home has one important advantage; you have metal close at hand. However, there are numerous disadvantages, the most obvious one being the risk of theft. Unfortunately, insurance is expensive, if you can even get it. Also consider that your liquidity is impaired because you have to return your coins and/or bars to a dealer to exchange them for a national currency. That takes time and may even incur a refining cost to confirm the gold content before the dealer accepts your metal.
When you store gold with a company, you don't have your metal at hand. You do, however, overcome the other disadvantages of home storage, but there are risks to be considered. Here is a list of several things to keep in mind when storing gold with a company:
- Always use "allocated storage". In this way, the vaulting firm is only providing safekeeping and has no ownership interest in the asset being stored. Legal title always remains with you. In contrast, "unallocated storage" is typically used when storing metal in a bank. With unallocated storage, legal title to the gold changes from you to the bank, meaning that you become one of its unsecured creditors. As a result, you no longer own physical gold. You own paper-gold, the value of which depends upon the bank's creditworthiness.
- Gold can be "allocated and identified" by the owner, in which case you own a specific bar with your ownership identified by the bar's serial number. Or your gold can be "allocated and undivided", where you own part of the metal being stored, just like fungible grain stored in a silo by many farmers.
- Always use non-bank vaults. When you store with a bank, you are never sure whether your gold is there or not. Banks are in the business of lending. In contrast, non-bank vaults are in the business of storing.
- Insurance is recommended. The vault operator will provide proof of insurance.
- For security and other reasons - like keeping insurance costs to a minimum - vaults typically do not allow you to visit and inspect your gold. They do, however, allow independent audits by professional third parties. If the vault does not allow audits, find a vault that does and hire a firm to regularly verify your metal.
The above is just a quick run-down of major things to keep in mind when buying gold. These points also apply to silver, but keep in mind, silver storage is more expensive. There are a number of reasons to explain the higher cost, but mainly, EUR10,000 of gold takes at present only 1/41th of the space taken by EUR10,000 of silver.
Each storage alternative has advantages and disadvantages, and every individual must weigh up the pros and cons to decide which alternative, or perhaps both, best suits his or her needs.
James Turk is founder and chairman of GoldMoney, which provides a convenient and economical way to buy and sell gold, silver and platinum online using digital gold currency for which he has four US patents.
