with Michael J. Kosares, founder of USAGOLD and author of "The ABCs of Gold Investing - How to Protect and Build Your Wealth With Gold"
Question. Who benefits from safe storage in the United States?
Answer. USAGOLD's precious metals storage program benefits both our domestic U.S. clientele as well as international investors who feel the need to diversify by location as well as allocation. Depository storage offers safety, security and convenience as well as peace of mind. International investors tradtionally have held gold and silver in the United States as a means to circumventing political and economic uncertainties in their own countries.
Q. How does USAGOLD's Safe Storage differ from other storage programs?
A. We offer precious metals depository accounts held off balance sheet and fully allocated – items separate from the assets and liabilities of the depository. Those two factors – off balance sheet and fully allocated – are crucial to the account holder in terms of financial safety. Banks and brokerage firms for the most part offer something completely different – precious metals in unallocated pooled and certificate accounts that are added to the institution's balance sheet as bankable customer deposits. I have seen estimates that only 1% of the stored gold globally is allocated. The remainder is unallocated. Unallocated storage programs are very profitable to the depository institution, but a far cry from the conservative depository account intended by the typical precious metals' investor.
Q. What is the nature of that risk?
A. In short, an institution can lend or lease unallocated metal at its discretion – much like a currency deposit at your neighborhood bank. The institution lists the metals on their balance sheet as a liability which makes it subject to full or partial forfeiture should the institution go into receivership and bankruptcy proceedings. In such a situation, the depositor is likely to be listed as an unsecured creditor. Obviously this situation introduces unintended counterparty risk to the account holder – risk that would be greatly heightened during an economic emergency.
Q. Under the circumstances just described, why do investors expose themselves to that kind of risk?
A. There are two reasons: First, financial institutions charge minimal storage and insurance fees for unallocated precious metals storage – an attractive selling point. It is easy to understand why. The institution makes its profit on the other side of the arrangement when it leases or lends the metal to a third party. Second, a good many account holders simply do not understand that they have signed off on these risks as part of their storage agreement. Once they understand their metal is at risk, they often move quickly to remedy the situation.
Q. Why are allocated accounts important?
A. In an allocated account, the investor owns the metal outright in his or her name, and it cannot be leased, loaned or otherwise hypothecated to another individual or institution. The ownership is simple and straight-forward without counterparty risks.
Q. You offer segregated and non-segregated storage accounts. What is the difference between the two?
A. Segregated storage refers to specific items tagged and stored with your name or the name of your trust, or other investment vehicle. Non-segregated storage refers to fungible, commercially interchangeable items co-mingled with the holdings of other account owners. (e.g., gold Canadian Maple Leafs or gold American Eagles). You still own the specific items you purchased but they are stored untagged on a shelf with the holdings of others. Non-segregated storage is much less expensive than segregated. Both types of accounts are fully-allocated.
Q. What are the fees for each?
A. Storage fees range from .3% to 1.5% of account value per year depending on the type of account and the precious metal stored. Please contact our Order Desk for full details.
Q. Who does USAGOLD use for its safe storage program?
A. USAGOLD offers its program through two different depositories one of which we have had a long relationship going back decades. We have a significant IRA business and most of the metals in those custodial retirement plans are secured at this depository. Consisting of over 60,000 square feet, the facility itself is state of the art in terms of security, inventory controls and general client services. Frequent recurring audits along with independently audited inventory controls ensure that all bullion and coin is properly accounted for and securely stored. The depository is exchange approved (CME and ICE) and carries a $1 billion insurance all-risk policy through Lloyd's of London. Located in the state of Delaware, it is separated from the geographical concerns associated with high-level political and economic centers in both Europe and the United States. The second depository we use, located in the western United States, offers similar advantages. It is an offshoot of a trading firm with which we have had a strong and proven relationship over many years. Profiles for each facility are available through our Order Desk.
(Photos above and below taken at the primary depository USAGOLD uses for its Safe Storage Program.)
Q. What are my choices for inclusion in my allocated storage account?
A. There is a wide assortment of items available through our Order Desk for inclusion including the range of contemporary bullion coins, bullion bars and bullion-related historical gold coins. To determine what makes sense for you as a precious metals owner, we advise a telephone conversation with one of our highly qualified representatives. There is a great deal of flexibility with respect to choices within these accounts.
Q. Are there any special considerations with respect to silver ownership for European investors?
A. In recent years, silver has evolved from a commodity-type investment to monetary metal in the thinking of a good many precious metals investors. Many see it as underpriced historically when measured against gold -- one of the factors that has driven strong silver demand in recent years. The European Union exempts investment gold coins of 90% purity or higher from value added taxes under a special directive issued in 1998. Silver though is still subject to Value Added Tax. The investor can postpone paying VAT taxes on silver by buying and storing in the United States. VAT would be due should you exercise the option to take delivery in Europe. Investors generally consider silver bullion coins a better option than bullion bars for monetary and safe-haven purposes.
Q. Why do investors purchase historical gold coins?
A. Many investors feel that historical gold coins offer an extra layer of protection against governmental intervention in the gold market. Governments, including the United States, historically view the older gold coins as collector items and, as such, accord them special treatment. In 1933, for example, when president Franklin Roosevelt quarantined gold in the United States by executive order, he exempted pre-1933 gold coins as items of "rare and unusual" value. Today a number of common, pre-1933 European, United States and South American gold coins trade at modest premiums over their gold content and track the gold price. There is an active two way global market for these items.
• Please see our Gold Coin Catalog for images, specifications and histories on recommended portfolio choices.
Q. Can I take delivery from my account?
A. Yes. Whether your account is segregated or non-segregated, you can take delivery at any time. Be advised that in the case of overseas deliveries outside the United States, customs, duties and taxes may be due upon importation. Some countries have exemptions with respect to certain precious metals. Please check with a customs broker or government import offices in your country of residence to detemine if import levies will apply to your delivery.
Q. What kind of paperwork is necessary to open an account?
A. There is a storage account agreement that needs to be completed and signed before we can transfer metal to your account.
Q. Are my holdings insured?
A. The depository, as mentioned above, maintains $1 billion in "all-risk" insurance coverage currently underwritten by Lloyd's of London. It includes all risks of physical loss and/or physical damage, including mysterious disappearance and/or unexplained loss and shortage, employee dishonesty and theft. Loss or damage from fire, flood or other natural disaster is also covered. Loss from acts of war, terrorism, cyber-attack, radioactive contamination, and chemical, biological, biochemical and electromagnetic weapons are excluded.
Q. Finally, can you outline the practical advantages of owning a USAGOLD Safe Storage Account?
A. The most obvious is a higher degree of safety for your precious metals holdings. An additional advantage, that I have come to appreciate over the years, is the speed with which buy and sell orders can be executed. You do not have to worry, for example, about transporting the metals before fixing a sales price which is the case with most precious metals transactions at most precious metals firms. You can conveniently buy or sell with a phone call.
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For those who still like to sit down with a good book as well as for those who still believe it important to buy the book before you buy the investment. This one has helped thousands of investors learn the basics of gold ownership.
The author is the founder of USAGOLD.