Written by Bron Suchecki, Vice President, Operations Monetary Metals LLC and Company Secretary, Gold Industry Group
When you are thinking of buying gold the first thing you should consider is where you are going to store your gold, as it affects what form of gold you may buy as well as who to buy it from.
There are three main ways to store gold:
- At home
- In a safety deposit box
- With a bullion dealer
Each of these vary in storage and insurance costs, how quickly you can get to your gold and the associated speed and cost when you want to sell your gold. Each storage option is a trade off between these factors and associated risks of the storage option. What suits you will also affect why you are buying gold (see Gold Investor Series: 4 "whys" driving precious metal investors).
Spend any time researching gold on the internet and you will come across the line “if you don’t hold it you don’t own it”. Reflecting of a distrust of any third party holding gold in custody, proponents of at home storage are willing to undertake additional security measures like hiding the gold (eg burying it in the backyard), decoy safes (serious criminals will remove safes and can easily break into basic safes you buy from hardware stores), or own guns and aren’t afraid to use them.
Even if you aren’t bothered by this extra work, holding gold yourself does mean that you can’t liquidate your gold quickly (to take advantage of price spikes) and will often involve additional costs (eg driving to your nearest bullion dealer) which may or may not be an issue depending on where you live and does add some risk.
It is hard if not impossible to get home contents insurance for gold but on the plus side your investment is private - especially if you pick it up in person from your local bullion dealer and you do not have any exposure to a third party.
Generally, at home storage suits the Insurance or EOTWAWKI type buyer (see the 4 “whys” article).
In a safety deposit box
If at home storage sounds too risky, then safety deposit boxes are another option where you maintain some form of direct control over your gold. The contents of safety deposit boxes are not on the balance sheet of the box operator so are protected from their bankruptcy. Privacy is maintained because the box operator does not know what you have put in your box.
A bank safety deposit box can be convenient however many banks have been getting out of this business and you may find availability limited. For those concerned about the stability of the financial system, if there is a bank holiday or your bank becomes insolvent, you will not be able to get access to your box until the bank reopens, which could be some time.
Another alternative is privately run safety deposit box services. With the closing down of many bank boxes, the private sector has expanded into this market and often taken over former bank facilities. The often provide extended access hours and in some cases work with bullion dealers, which can simplify the process when you come to sell your gold (although you will still need to visit the facility to open your box).
Safety deposit boxes suits the Investor or Insurance type buyer.
With a bullion dealer
Most bullion dealers offer storage. They already have secure facilities for their shop inventory so setting aside space for customer gold is a natural extension of their business. It can make a lot of sense if you are buying a large amount of gold and the clear advantage is the convenience – it is easy to trade and there is no shipment costs and the risks associated with transporting physical metal.
It is important to be clear of what type of storage the bullion dealer is offering, particularly whether the gold will be on the balance sheet of the dealer, as this means you will be an unsecured creditor if the bullion dealer goes into bankruptcy. In general terms there are two types of storage:
- Allocated – the dealer acts as a custodian only and you retain title to your gold. The metal should be physically segregated from the dealer’s business inventory and specifically identified as yours.
- Unallocated - the dealer records a liability in their accounts that they owe you a specific amount of gold and they may back this with their physical business inventories or a specific pool set aside. No gold is specifically set aside in your name.
Allocated storage will attract storage fees (which usually cover insurance) and fabrication fees, as a specific bar or coin is sold to you. This additional cost is the price of being protected against the bankruptcy of the dealer.
Unallocated usually has no storage or fabrication charges, which will make it more cost effective but at the risk of bankruptcy. Accordingly, you need to be confident that the dealer has been in business for some time and is reliable and trustworthy.
Dealer storage suits the Speculator type (particularly unallocated) and Investors.