Owning gold, though seemingly quite simple on its surface, carries significant political risks and thus deserves careful thought, preparation, and planning. Consider the following:
Paper or Physical Gold?
“Paper Gold” is gold you own that is held on your behalf by a custodial financial institution. Your claim is evidenced by paper, be it a certificate, a storage receipt, a deposit slip, or any other financial instrument. Paper gold ownership exposes you to risks of loss (known as “counterparty risks”) due to bankruptcy, confiscation, nationalization, or outright fraud on the part of your custodial financial institution. In the event of a bank failure or currency collapse it is unlikely that paper claims on gold assets would be honored, and in perilous times like these paper gold ownership (with specific exceptions) is ill-advised. Physical gold ownership provides more peace of mind, eliminates counterparty risks, and protects against the inexorable devaluation of paper money. You should always buy physical gold, and never paper.
Gold Bullion or Gold Coins?
The words “bullion” and “coins” are sometimes used interchangeably, but there are important differences. “Gold Bullion” coins are worth only the market (or “melt”) value of their constituent metal, but some coins have additional “numismatic” value, which means they have “collector” value in excess of their melt value. Most gold dealers offer both bullion coins and numismatic coins, and use those terms to differentiate them. Valuing numismatic coins requires more specialized knowledge than does valuing bullion coins, and is thus more complicated. Numismatic coins, on the other hand, provide better protection against potential capital controls and/or political confiscation, as history attests. In April, 1933, pursuant to Presidential Executive Order 6102, all privately held gold bullion in the United States was confiscated by the government in what it deemed “a national emergency.” However, numismatic gold coins were specifically exempted from confiscation. If you buy numismatic coins, do your homework.
Gold Storage – Offshore or Domestic?
To paraphrase legendary author and speculator Doug Casey, the biggest risk to portfolios is not investment risk; it is political risk. Casey recommends diversifying political risk by storing some of your precious metals holdings offshore. Currently, gold and silver bullion held abroad are not “reportable” under U.S. law, and thus would not be subject to U.S. capital controls or confiscation should either be instituted. Although no country is totally exempt from political risk, there are good alternatives for foreign gold purchases and storage. GOLD MONEY, headquartered in the United Kingdom, provides unique gold purchase and storage opportunities. The Company owns vaults in London, Zurich, and Hong Kong, respectively, and will sell you gold and store your purchase in the vault or vaults of your choice, and you may move your holdings from one vault to another at any time at your discretion. SPROTT PHYSICAL GOLD TRUST, located in Canada, invests exclusively in physical gold bullion. Certificates in the Trust are secured by allocated gold bullion stored in a non-bank, third party vault in Canada, and Certificates may be redeemed for physical bullion monthly. At your request, Sprott’s non-bank bullion Custodian will deliver your gold to you anywhere in the world via Armored Transportation Service Carrier. If you own gold offshore, you should not store it in a bank.
We hope this information will be helpful to those of you preparing to add gold to your portfolios.