Are Bullion Vault & Gold Money Safe ?

[Steve Netwriter]

Since this question comes up quite often, and I can't find the discussions easily, I thought I;d try and keep a note of them here.

 

A few things to read from the sites:

 

Gold Money

http://www.goldmoney.com/en/guarantee.html

 

Check out each sub-page.

 

This one I think answers the question about "what happens when no one will buy my gold?"

http://support.goldmoney.com/article.php?id=087

 

 

Start from Magpies post questioning the business models, and the replies: (on page 5)

Gold Investment & Trading - #3 : May 2008, Has Gold found a bottom at $850 per ounce?

http://www.greenenergyinvestors.com/index....ost&p=38310

[knavel]

Since this question comes up quite often, and I can't find the discussions easily, I thought I;d try and keep a note of them here.

 

A few things to read from the sites:

 

Gold Money

http://www.goldmoney.com/en/guarantee.html

 

Check out each sub-page.

 

This one I think answers the question about "what happens when no one will buy my gold?"

http://support.goldmoney.com/article.php?id=087

 

 

Start from Magpies post questioning the business models, and the replies: (on page 5)

Gold Investment & Trading - #3 : May 2008, Has Gold found a bottom at $850 per ounce?

http://www.greenenergyinvestors.com/index....ost&p=38310

 

Steve,

 

I am seriously looking at gold bullion investing. I want to follow up on this topic:

 

1) Unfortunately I can't get the last of your links above to work so apologies if I re-invent the wheel.

 

2) BV and GM assert that taking physical is possible, but it reduces resale as there is a provinence issue. Can anyone confirm this? Thoughts?

 

3) I am inclined more towards BullionVault.com because I like the idea of storage in Switzerland.

 

4) In my legal practice I have been very close to bankruptcy and I am very sensitive about this issue as I have seen it play out. You will note that Bullion Vault (and presumably Gold Money) are not regulated entities by a body like the FSA. This means traditional legal relationships govern.

 

I read all of BV's terms and conditions and they seem well designed to give customer confidence. I also have no issue with them facially.

 

The key concept is that they treat the gold as a bailment (they are a custodian) and the gold is allocated. They claim that this means that if they go under, the gold cannot be seized by a liquidator. I will try to do some legal research into this, but I don't have all the tools I had when I was at my law firm. I'll report back if there is interest.

 

The gold bars are 400oz. How can you be allocated a piece of a gold bar?

 

5) Again, bankruptcy my biggest concern. An analogous situation is wine that is stored in bond in the UK. If you can show provenance, it will likely fetch more at Christies when it goes to auction. And while wine is more distinct than gold, there is fungibility (oranges are oranges) among the same vintage by the same producer, e.g., 2000 Mouton Rothschild.

 

A couple of years ago there were one or two bankruptcies of wine merchants who themselves appeared to have custody of client wines in bond. They were getting orders for, again e.g., 2000 Mouton and just saying to themselves, basically, "I'll just send this guy Mr. So and So's Mouton and get more for Mr So and So later." Well later never happened and these mercants went tits up and clients lost their wine (seized by a liquidator) and became general creditors. Similarly, some took money for wine futures from the clients and never actually bought the wines from the chateau. I don't want this to be me!

 

See: http://www.decanter.com/news/83492.html

 

And: http://www.decanter.com/news/147633.html

 

Wine and gold sales are both unregulated businesses. When I worked for a FSA regulated business we had to make monthly financial reports to the regulator.

 

Some of the old posts I've trawled over show that people like BullionVault but I am happy to hear from people who have successfully bought / sold and what they feel about the security of the investment. Or is everyone just going to that shop on Strand and buying coins?

 

Thanks

 

 

 

[Steve Netwriter]

I'm off to bed, so just a couple of quick points:

 

1. I tried the link and it worked. Maybe try this and scroll down:

 

http://www.greenenergyinvestors.com/index....=3142&st=80

 

2. GM have a vault in Zurich too.

 

3. Oh and GM are in Jersey, whereas BV are in the UK. Maybe relevant ?

 

[wren]

A couple of years ago there were one or two bankruptcies of wine merchants who themselves appeared to have custody of client wines in bond. They were getting orders for, again e.g., 2000 Mouton and just saying to themselves, basically, "I'll just send this guy Mr. So and So's Mouton and get more for Mr So and So later." Well later never happened and these mercants went tits up and clients lost their wine (seized by a liquidator) and became general creditors. Similarly, some took money for wine futures from the clients and never actually bought the wines from the chateau. I don't want this to be me!

A very interesting post and I'd be interested to hear if you learn more about the legal details.

 

Concerning the wine merchant you mention, am I right in thinking that they owed wine which they did not actully hold?

 

BV makes a point of regularly publishing the list of gold bars which are held, to reassure customers that sufficient metal is actually sitting in the vaults.

 

Any physical withdrawal of bars must be sanctioned by ViaMat and the intention to withdraw and how much published beforehand on the website. Again to reassure customers.

[TinBrick]

The philosophical problem I have with GM & BV and other similar entities like the Perth Mint is nothing to do with any doubts as to their probity or solvency.

 

Most people who invest through them, as opposed say, to an ETF or even a spreadbet, do so for portfolio insurance and to make sure that some of their assets at least are preserved if there is a catastrophic financial meltdown.

 

The difficulty I have with that is, what use is physical bullion located in Switzerland or Australia to me where I live, if society is falling apart all around me and I want to feed my kids? If the problem was, for example, a flu pandemic (which the scientists say is only a matter of time), it's very likely there would be stringent travel restrictions. On the other hand, as someone has already commented in another thread today, taking physical posession of bullion creates substantial security risks. What to do?

 

 

[wren]

The difficulty I have with that is, what use is physical bullion located in Switzerland or Australia to me where I live, if society is falling apart all around me and I want to feed my kids? If the problem was, for example, a flu pandemic (which the scientists say is only a matter of time), it's very likely there would be stringent travel restrictions. On the other hand, as someone has already commented in another thread today, taking physical posession of bullion creates substantial security risks. What to do?

So long as they are functioning properly you could simply sell bullion for cash and then transfer to your own bank account. If inflation is high, quickly withdraw the cash and spend it on something useful.

[TinBrick]

So long as they [GM, BV and the banks] are functioning properly . . .

 

Indeed. But to take the flu pandemic example, official US govt planning assumptions assume in a severe outbreak, 30% of the population will be infected and there will be 1.9 million deaths (in the US). Absenteeism attributable to illness, the need to care for ill family members, and fear of infection may reach 40%. (http://www.pandemicflu.gov/plan/pandplan.html)

 

I don't think in that situation you could rely on anything functioning properly. At any rate, I see no reason to suppose GV or BM would do any better than an ETF. And remember, a flu pandemic is certain to happen and is in fact overdue. The only uncertainty is how severe it will be.

 

What I'm getting at is that in my view, for catastrophe insurance, there's nothing to choose between them - none of them would work particularly well in extremis.

[wren]

What I'm getting at is that in my view, for catastrophe insurance, there's nothing to choose between them - none of them would work particularly well in extremis.

Sure in that sort of situation. But I'm not so sure gold or silver at home or in a safe deposit box would be terribly useful either.

 

I see them primarily as a buffer against inflation.

 

[TinBrick]

Sure in that sort of situation.

 

But if GM & BV wouldn't work in "that sort of situation" what is the advantage of them over, say, an ETF or spread bet? They each give you the same investment exposure to the metal price. And as knavel has pointed out above, GV and BM are unregulated, which means if you did have a dispute, your only recourse would be through the courts - a daunting and expensive prospect for the small investor.

[knavel]

And as knavel has pointed out above, GV and BM are unregulated, which means if you did have a dispute, your only recourse would be through the courts - a daunting and expensive prospect for the small investor.

 

I am very intimate with the bankruptcy of an FSA regulated firm. For ALL clients of this company, the fact that it was regulated by the FSA still means they still have to wait for their money. There are some who will be better off than others once there is a payout from the Liquidator, but the point is that even with an FSA stamp, nothing is for certain.

 

Sure (prior to bankruptcy) you can complain to the FSA if you can't get resolution with the firm, and that means something. But ultimately, we all have to watch our own backs--for even public companies who supposedly publish their financials can suddenly be shown as anemic (Enron, Refco).

 

I can take care of myself on the court side thanks to the fortunate circumstances of my profession. But in a bankruptcy I am pretty powerless and let me tell you that Administrators/Liquidators can be some of the biggest idiots you'll ever meet. It's about one step better than the government coming in and taking over a business they know nothing about (like, oh, health care).

 

Nothing is 100% failsafe, but in our discussion here it would be comforting to know that if the comany goes bankrupt, I can go to Zurich, etc and demand my gold.

 

This is what I was looking for a clearler picture about in the BV ts and cs this morning.

 

The snag I have to see if I can resolve is that BVmakes it somewhat clear that it has to instruct the custodian to let you take the money out. Well if BV is run by administrators / liquidators, then what happens?

 

Again, once I saw the company I know go into bankruptcy, that was it for the directors--they have no power anymore at all. Hence if the administrator / liquidator (in our hypothetical BV bankruptcy) won't give the instruction to the custodian, I am not sure what you can do..except go to court to get the judge to order otherwise depending on where the law comes down.

 

Well you'd better have some serious gold holdings to make the court litigation proposition economically worthwhile.

 

It's clear to me in BV's terms that they are very sensitive to the issue and they address it in what I think is an honest and comprehensive way, which I must point out is most appreciated. Indeed, had I not been near a bankruptcy and seen what Administrators do, then I would probably have been fully placated. But chances are BV people haven't experienced bankruptcy themselves and so don't know the issues like I do. ANother route to consider is their insurance policy: does it only cover theft? What about bankruptcy--I am a lot more afraid of bankruptcy of a company in the gold sector than theft of gold itself.

 

And I don't think I need to be cgnao to tell you we are on the verge of a lot of bankruptcies.

 

 

 

 

[MattFC]

2) BV and GM assert that taking physical is possible, but it reduces resale as there is a provinence issue. Can anyone confirm this? Thoughts?

 

I though the issue here is that once it has been physical in terms of being outside the controlled enviroment, you would need to have it re-certified in terms of whoever you sell it onto, which of course will cost money

 

 

[wren]

But if GM & BV wouldn't work in "that sort of situation" what is the advantage of them over, say, an ETF or spread bet? They each give you the same investment exposure to the metal price. And as knavel has pointed out above, GV and BM are unregulated, which means if you did have a dispute, your only recourse would be through the courts - a daunting and expensive prospect for the small investor.

I haven't spoken, as far as I remember, against other forms of investing in bullion and I'm not well qualified to do so. For short term trades ETFs and spreadbetting might well be better.

 

I like real metal. I'm also conscious that people purchasing real metal are what drives the real, as opposed to paper, market. And that may be what counts in the long run.

 

I'm probably a bit of a fundametalist.

 

[TinBrick]

I haven't spoken, as far as I remember, against other forms of investing in bullion and I'm not well qualified to do so. For short term trades ETFs and spreadbetting might well be better.

 

Why only for short term trades?

 

I like real metal. I'm also conscious that people purchasing real metal are what drives the real, as opposed to paper, market. And that may be what counts in the long run.

 

I'm probably a bit of a fundametalist.

 

Well, I just take the view that an investment in GM or BV is not, in any significant sense, more "real metal" than, say, the ETF. If you need the reassurance of having real metal (and there are very good and reasonable grounds for that), I think you're better off to buy some krugerrands and find a way of dealing with the security issues that raises.

[MattFC]

Well, I just take the view that an investment in GM or BV is not, in any significant sense, more "real metal" than, say, the ETF. If you need the reassurance of having real metal (and there are very good and reasonable grounds for that), I think you're better off to buy some krugerrands and find a way of dealing with the security issues that raises.

 

ETF is at best a paper contract, BV or GM is a albeit a piece of paper.. for a physical allocated holding, but BV and GM don't have any charges on your allocation.. its not theirs, its yours, they in effect act as a service company (biggest risk here IMHO is for any cash you have in their accounts, either waiting to buy, or as a result of sales proceedings). I agree the legal route to enforcing it would be painful, however there are enough people on this board alone that I would hope we could club together for a mini group action, after all our positions would all be the same, which reduces the complexity (e.g. not multiple contracts with different terms)

The key different surely is that ETF's are a)leveraged b)illiquid in terms of any "real" backing, so the premise it that when the $hit hits the fan, just like at the moment it exists in thin air, that’s what will happen when/if it blows up.

So.. if your objective is securing long terms peace of mind.. then probably BV or GM. That’s not to say though that there aren’t plenty of ETF opportunities.. just manage your exposure actively, make sure you can pull out quick, and don’t bet on just one horse

I think cgnao would be well placed to answer the ETF vs physical PM debate!

 

[knavel]

(biggest risk here IMHO is for any cash you have in their accounts, either waiting to buy, or as a result of sales proceedings).

 

You hit the nail on the head: When a company is insolvency, the second any money hits the bank account it is in control of the administrators/liquidators. So even if you can instruct the sale to someone else (in administration this is fairly possible since the business is still considered somewhat a going concern) .

 

Hence why I like the idea that if sh1t hits the fan, then I can go down to the vault and pick up the gold. Problem: you need to have a min of 100oz by my reading (ie $100K) to get a bar for yourself in NY and 400 in CH and UK. They ain't gonna cut a bar into little sections like a chocolate bar so you get your 25K worth i reckon.

 

One other thing: I've now looked at goldmoney and they are regulated in Jersey. But I don't know the scope of the regulation (ie do they have to make financial reports to the regulator, maintain a minimum balance sheet, etc). That said, I think I like bullionvault's clear statement that they are a bailee best and the bullion vault site is MUCH more informative.

 

 

[Pixel8r]

You hit the nail on the head: When a company is insolvency, the second any money hits the bank account it is in control of the administrators/liquidators. So even if you can instruct the sale to someone else (in administration this is fairly possible since the business is still considered somewhat a going concern) .

 

Can you think of any reason why GoldMoney would go bankrupt? I mean they make money by selling people gold in a bull market. I think they must be one of the few companies making money at the moment.

[knavel]

Can you think of any reason why GoldMoney would go bankrupt? I mean they make money by selling people gold in a bull market. I think they must be one of the few companies making money at the moment.

 

Keep in mind this is simply positing scenarios. I have no basis to think any of the following (or other possible examples) is the case at all for GM:

 

1) An employee embezzles funds out of the company and to their surprise they suddenly have no funds.

 

2) They do a huge deal in gold for a client who then defaults and they have a liquidity issue. They are below their capital profile (if required to have one per their regulation) and the Jersey regulator shuts them down.

 

There really are a lot of possibilites. The point is that I saw a company sell last summer for many millions of euros only to be bankrupt at the beginning of this year thanks to a couple of overly large trades where the client defaulted.

 

The bottom line is what risk YOU are comfortable with. Like I said above, I am more sensitive to bankruptcy than most. Especially these days.

 

 

[TinBrick]

The key different surely is that ETF's are a)leveraged b)illiquid in terms of any "real" backing

 

Sorry, I don't understand the basis for these assertions - could you elaborate please?

 

Hence why I like the idea that if sh1t hits the fan, then I can go down to the vault and pick up the gold. Problem: you need to have a min of 100oz by my reading (ie $100K) to get a bar for yourself in NY and 400 in CH and UK. They ain't gonna cut a bar into little sections like a chocolate bar so you get your 25K worth i reckon.

 

Another argument in favour of krugerrands I suppose and goes to the heart of the point I'm making. Nothing I've read here would give me any confidence that if TSHTF assets in BV or GM would be in any meaningful sense more accessible than in an ETF or other investment medium.

[MattFC]

Sorry, I don't understand the basis for these assertions - could you elaborate please?

 

Ok.. I probably exaggerated a little, as I do think they have a role to play in terms of short terms easy exposure to PM.. but, when all said and done:-

 

The exchange-traded gold funds (ETFs) launched over the last half-decade let you track the price of gold – if not actually buy gold to own it outright – by trading a security on the stock market. The leading ETFs buy gold and hold it in trust at HSBC in London; ask your stock broker about LxyOr GBS in the United Kingdom and Europe, or StreetTracks GLD in the US. These shares can only be traded during your local stock market hours, and like the Perth Mint, they will also require a transfer of cash into dollars if you're not buying gold from the US.

 

Another drawback of buying gold through the gold ETFs is their daily shrinkage. These funds all charge 0.4% per year to cover storage, insurance and administration fees, deducting this fee from the physical gold backing each share. But while the amount of gold backing each share shrinks a little each day, the title on each share remains the same – typically one-tenth of an ounce. Over time, this gap only grows wider; the shares in Australia's Gold ETF now represent less than 9.876% of an ounce after just four years. By 2010, they will come to represent less than 9.75%. The sponsors of the leading gold ETF programs are likely to consolidate the shares soon, repricing them to account for this shrinkage

 

http://www.marketoracle.co.uk/Article3473.html

Quote

The following example a second grader should be able to follow. Yesterday GLD traded at a price of $87.05 while gold futures were $882.00 and spot gold was at $881.00. I called my best sources and the best quote I could get for purchasing one ounce of physical gold was $897.00. So here is the question: If you were buying ownership of gold at an effective price of $870.50 for an ounce of gold by buying the gold ETF at $87.05, how does the gold ETF turn around and purchase real physical gold for you when the spot price is $11.00 higher, the futures price is $12.00 higher and the physical price is $27.00 higher?

 

That is a neat trick. I wonder how they do it. YOU SHOULD START WONDERING TOO! Do you really believe the GLD ETF can survive loosing $27.00 for every ounce of gold that they buy for you? Now you know why the custodian and sub-custodian's agreements for these ETFs are so complicated and un-auditable. It would make sense that the GLD would have to trade at least $4-$5 higher than the price of gold if they were actually buying it, insuring it, guarding it, and delivering it. They say there is a sucker born every minute. This should help to prove that point.

 

If you can understand that the current economic and financial environment screams for protection through ownership of gold and silver, please stop shooting yourself in the foot by thinking that the ETFs will do anything but delay and muffle the rise of gold and silver and leave the ultimate holders with nothing but worthless paper at exactly the moment you will need gold and silver for your financial survival. Nothing compares with having the gold and silver in your own possession and the gold and silver ETFs are way down the list as far as safety goes, and far below even gold and silver stocks

[TinBrick]

Another drawback of buying gold through the gold ETFs is their daily shrinkage. These funds all charge 0.4% per year to cover storage, insurance and administration fees, deducting this fee from the physical gold backing each share.

 

This applies to GM too, although in fairness their annual charge for gold is less than half the ETF's at 0.18%. BV's is lower still at 0.12%. These are still deducted from the value of your holding in much the same way as the ETF. This, however, is a cost issue, not a security issue.

 

Nothing compares with having the gold and silver in your own possession and the gold and silver ETFs are way down the list as far as safety goes, and far below even gold and silver stocks.

 

At the risk of repeating myself, if you want investment exposure to the metal price, there is a number of different ways of achieving it and GV & BM look like good vehicles to me. If you want insurance against systemic breakdown I don't believe GM & BV offer any significant advantage. I agree with the comment above, although of course physical possession brings its own security headaches.

 

For a counter argument to the piece you quote, have a look at this:

 

http://www.silveraxis.com/commentary/silve...allegations.pdf

 

(By the way, I have no holdings in any ETF.)

 

Allegations have popped up from time to time warning potential and existing ETF investors that

Barclays’ iShares Silver exchange traded fund (AMEX: SLV) is not backed by physical silver as

evidenced by poor custodial controls and other features that it has in common with StreetTracks

Gold Trust (NYSE: GLD). The argument seems to center on the idea that the sole purpose of

these ETFs is to trick the unsuspecting public into believing that large stockpiles of precious

metals are being accumulated, while in (the accuser’s) reality most of the gold and silver is

actually being leased or sold into the market in order to depress precious metal prices and leave

behind nothing but paper promises. Thus, the warning concludes, anyone seeking the benefits of

an investment in precious metals should look elsewhere because SLV and GLD are, at best, the

equity market equivalents of futures contracts.

I consider these claims to be incredible in both the literal and figurative sense and I have tried

hard to refute them in an equally fantastic manner. Unfortunately, all I can seem to come up with

are mundane facts, boring logic and basic common sense.

 

 

[wednesday2]

A word of warning against using "Bill Pay" to fund your Bullion Vault account. I was under the impression it would be quick and easy. Easy yes, quick no.

 

First, our bank called us 2 TIMES, 2 different departments, to confirm we wanted to remove that much money from their establishment, before they let the money go. Then, little did I know, this was not an electronic transfer as one might assume. Since this was the first time we used Bill Pay for this payee, they actually send a physical check in the mail! Then they might be deemed worthy of ongoing bill pay transfers....I suppose once this happens the transfers will be quicker.

 

So we have been waiting waiting waiting waiting, well over a week. I'm really kicking myself. My advice, do a wire transfer.

[Steve Netwriter]

Is this a real bank you're using or a bunch of clowns ?!

 

With both BV & GM I had no problem at all. Just filled in the details and sent the money.

 

[wednesday2]

Is this a real bank you're using or a bunch of clowns ?!

 

With both BV & GM I had no problem at all. Just filled in the details and sent the money.

 

Wells Fargo, major US bank. Did you use the Bill Pay option?

 

[Steve Netwriter]

Ah that explains it. I was using a UK bank.

Now I read something very recently from GM ? that you can now use a local US bank to send money. But you have to use the 'old' method to get the money back out.

 

Sounds like a good thing to know for anyone in the US.

 

[wineburgundywine1001]

This applies to GM too, although in fairness their annual charge for gold is less than half the ETF's at 0.18%. BV's is lower still at 0.12%. These are still deducted from the value of your holding in much the same way as the ETF. This, however, is a cost issue, not a security issue.

 

 

 

At the risk of repeating myself, if you want investment exposure to the metal price, there is a number of different ways of achieving it and GV & BM look like good vehicles to me. If you want insurance against systemic breakdown I don't believe GM & BV offer any significant advantage. I agree with the comment above, although of course physical possession brings its own security headaches.

 

For a counter argument to the piece you quote, have a look at this:

 

http://www.silveraxis.com/commentary/silve...allegations.pdf

 

(By the way, I have no holdings in any ETF.)

 

Allegations have popped up from time to time warning potential and existing ETF investors that

Barclays’ iShares Silver exchange traded fund (AMEX: SLV) is not backed by physical silver as

evidenced by poor custodial controls and other features that it has in common with StreetTracks

Gold Trust (NYSE: GLD). The argument seems to center on the idea that the sole purpose of

these ETFs is to trick the unsuspecting public into believing that large stockpiles of precious

metals are being accumulated, while in (the accuser’s) reality most of the gold and silver is

actually being leased or sold into the market in order to depress precious metal prices and leave

behind nothing but paper promises. Thus, the warning concludes, anyone seeking the benefits of

an investment in precious metals should look elsewhere because SLV and GLD are, at best, the

equity market equivalents of futures contracts.

I consider these claims to be incredible in both the literal and figurative sense and I have tried

hard to refute them in an equally fantastic manner. Unfortunately, all I can seem to come up with

are mundane facts, boring logic and basic common sense.

 

thanks for participating oporunidad this page is great for my opinion on the wines and their variety

http://www.myburgundywine.com/