Do You Own Your Gold? | Nick Barisheff

by Nick Barisheff

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Whether you’re buying a brand new BMW or a second hand Range Rover, it’s necessary to secure clear title so you can sell or trade the vehicle in the future. If you purchase a home in The Hamptons or in the Vancouver suburbs, the title or warranty deed should ensure the property is unencumbered by a mortgage or tax lien. When acquiring gold, silver or platinum, you need documentation to prove you own the bullion and can take physical possession if desired. Without proper paperwork, you might not own the car, the mansion or the metal.

Do You Own Your Gold? | Nick Barisheff
Gold bars. Gold in the form of bullion.

While most people know the importance of owning an automobile or real estate outright, investors too often fail to obtain legal title to their precious metal holdings. This is an enormous and fundamental mistake. If you stash a handful of gold bars and silver coins in a home safe, you’re adequately covered, particularly if your bullion is insured with a rider to your homeowner’s policy. Possession, as it’s been said, is 9/10ths of the law. However, if your precious metals stack has outgrown your secret cellar vault, you’ll probably take the risks of self-storage into account and delegate someone else to store your bullion. In that case, it’s imperative to do your due diligence, making sure you have legal ownership of your wealth preservation stockpile.

As with classic collector cars, luxury yachts or tract of fertile farmland, establishing free and clear title is crucial. To assure ownership, gold and silver bullion must be stored on an allocated basis, meaning the metal is held exclusively for you – the title holder. Documentation ensuring legal title must state the owner’s name, bar weight, purity, serial number, and the name of the refiner. If any of these details are missing, ownership of your precious metals could be in doubt, and its authenticity and value compromised.

Hundreds of financial products track gold and silver prices, but few confer legal title or allow investors to take possession of physical metal. Most precious metals-linked investments are based on unallocated or pool accounts, meaning shareholders own IOUs or paper promises for gold, silver or platinum rather than specific ounces or bars of bullion. This defeats two primary reasons for outright bullion ownership: no counterparty risk and certainty that your metal holdings aren’t leased, leveraged or hypothecated in any way.

While ETFs allow investors to bet on the future price of gold and silver, they don’t grant legal ownership to the underlying metal. Most shareholders of SPDR Gold Trust (GLD) and iShares Silver Trust (SLV), for instance, can’t take delivery of bullion held by trust custodians. (See “The Illusion of Owning Gold article.”)

That’s why it’s essential for individuals and financial advisors to read and understand what they are buying or selling to their clients before exchanging hard-earned cash for a precious metals investment. Unfortunately, custodial arrangements and storage details cited in ETF disclosure statements are complicated, rife with legalese and perplexing insider lingo; some say intentionally. The convoluted language prevents many investors from understanding precisely what they’re buying. The U.S. Securities and Exchange Commission (SEC) discourages investment in financial products that are overly complex and beyond an investor’s comprehension.

Do don’t invest in something that you do not understand. If you cannot explain the investment opportunity in a few words and in an understandable way, you may need to reconsider the potential investment.”

U.S. Securities and Exchange Commission (SEC)

People willing to investigate precious metals ownership should consider funds with allocated bullion custodial agreements and storage. Allocated funds segregate holdings and certify individual ownership of specific bullion bars. Such is the case with BMG’s BullionFund, BMG Gold BullionFund and BMG Silver BullionFund, which convey legal title of gold, silver and platinum to the unitholders of the funds.

As individuals, financial advisors and pension fund managers diversify their portfolios amid monetary inflation and economic turmoil in the coming years, more people will turn to precious metals ownership as an alternative to traditional stock and bond investments. The key is obtaining the proper paperwork, thus ensuring free and clear title to the world’s most enduring and time-tested money.

The information contained in this article provides a general overview of subjects covered, and the expressed personal views and opinions are not intended to be taken as advice regarding any product, organization or individual, and should not be relied upon as such. Consult your investment and legal advisors regarding specific coverage issues. Information and opinions expressed in this article are provided without warranty of any kind, either express or implied, including, without limitation, warranties of merchantability, fitness for a particular purpose, and non-infringement. BMG uses reasonable efforts to include accurate and up-to-date information from public domains and sources but does not make any warranties or representations as to its accuracy or completeness. BMG assumes no liability or responsibility for any errors or omissions in the content of this article.

This Post Has 2 Comments

  1. TnAndy

    When I see articles like “Do you own your gold?”, I assume it must be talking to people with MANY millions of bucks to put into gold….because the little guy out here in the real world can have a million bucks worth….around 500 ounces….in a lunch box sitting on the shelf in the garage.

    1. Monica Gaudet

      Not necessarily. This is valid for both the high-net worth investor, the investor just starting out and the investor who has 500 ounces or less.

      Before investing in precious metals it is essential that you take some time to consider where it will be stored. This is a more complex subject than might be assumed, with many factors needing to be weighed up. These include size of collection, costs, insurance, accessibility, security and the maintaining of the items themselves. There are many options to choose from, but they essentially fall into three categories, home storage, bank safes and professional vaults.

      Home Storage
      Home storage has some inherent pros and cons that will largely depend on specific and individual circumstances. One of the most common reasons people choose to store their gold at home is the ability to access it as easily as possible. This can be helpful if there is a sudden change in the market and a quick sale would be advantageous. For collectors, having access to the precious metals is also a part of the joy of collecting, particularly if the pieces are of aesthetic value.

      It is generally thought to be unwise to store large collections at home, however, so the more that the products themselves are worth, the more it is advised that professional storage should be sought.

      If you do decide to store your gold at home, it should be known to as few a people as possible to ensure that the temptation for the would-be burglar is negated. This should include buying a quality safe that is placed in a secret location in the home. Paying for the safe in cash will also make your valuables less traceable. You also must take into consideration house insurance as well. Some insurance companies will not ensure if precious metals are being stored there.

      Bank Safes
      Should you wish to store your gold in another location there are several options available, although some are better than others. Bank safes are one of the most affordable options and are quite popular with smaller investors as a result. After all, it makes little sense paying for expensive storage if the collection is still being built and not quite there yet as far as worth is concerned. This should be weighed up with the fact that insurance must be handled separately, however, another cost that has to be factored in. What’s more, larger collections tend to be more expensive than vaults or home storage for some investors.

      Another issue is the lack of quick access to the gold itself. This can be a disadvantage if you are likely to need to sell your gold in a timely manner. If this is the case then bank safes are not a suitable option. Also, because much of the world’s precious metals purchased or traded today is stored in unallocated form (see definition of Allocated vs Unallocated Bullion) However, bullion secure storage in allocated, LBMA member vaults provides peace of mind.

      NOTE: In the event of a bankruptcy of the custodian, the holders of unallocated bullion become unsecured creditors.

      Since allocated bars in the BMG BullionBars™ program ensure that evidence of title of the bullion is assigned to the purchaser, allocated bullion cannot form part of the custodian’s assets, and therefore is not subject to any third-party claims.

      Vaults
      The most popular option for gold storage is the vault. Vaults are professionally maintained and secure storage facilities whereby precious metals can be stored with great peace of mind. Reliable vaults offer full insurance for all gold and silver products, which not only guarantees security, but makes sure that any damage or tarnishing of the products from poor storage practices are covered by the insurance. Something that is highly unlikely due to the fact that such vaults are run by professionals.

      On the down side, physical access to the products themselves is often prohibited for security reasons. This might put off some collectors, for whom enjoying the pieces is part of the joy of the collection in the first place. On the other hand, not allowing public admission to the vaults lowers the security risk considerably and most prefer this policy than to those of bank safes or vaults that allow such access.

      Hope this helps.

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