Stored bullion might be taken from you

November 08, 2018

Pat Heller

For greater security, many owners of physical precious metals store some or all of their holdings in bank vaults or in bank safe deposit boxes. In general, this would tend to be safer than hiding them or putting them in a safe at home or a workplace.

But will you continue to have the ability to withdraw your physical precious metals from bank storage or bank safe deposit boxes at your discretion? There are some signs that the security of your precious metals stored at banks may not be as secure in the future as you might think.

Take the obvious circumstance applicable today. When someone dies who has a safe deposit box, the bank is supposed to seal access to the contents until they can be opened under controlled circumstances where all the contents are inventoried for estate purposes. Therefore, someone who wants to keep knowledge of the existence of these assets private should avoid storing them in a bank safe deposit box.

When MF Global, a major global financial derivatives broker and commodities brokerage, went bankrupt in 2011, precious metals guru Gerald Celente had some allocated precious metals stored with the company. In theory, allocated vault storage means that specifically identified assets are property of the account owner and are not assets of the bank or company storing the assets (which is the riskier circumstance with unallocated storage). Therefore, they are, in theory, not subject to third-party claims against the bank or company that arranged for the storage. For months, Celente reported that he was unable to withdraw his physical precious metals from this company. I suspect he never did.

In the years since, I have heard multiple reports that customers of a large Dutch bank who had physical precious metals stored in the bank vault were not being allowed to withdraw their assets. In at least one instance, the bank insisted that the only option the owner had was to sell their assets to the bank and receive a cash payment. I have heard of occasional obstacles faced by customers of Swiss banks who wanted to withdraw their physical precious metals stored there.

When the banking system in Cyprus crashed in March 2013, part of the international bailout arrangements called for “bail-ins.” What that meant is that account holders with large balances in their bank accounts had part of their balances seized by the bank. This apparently only applied to cash balances at the time. In the years since, multiple nations have changed their banking regulations to either explicitly (such as in Canada) or implicitly (such as the U.S. balances above the $250,000 insured maximum) authorize seizure of customer bank-held assets in the event that the bank faces the risk of failure. It is possible that in some of these countries, any physical precious metal assets stored at the banks may be subject to “bail-in” seizure.

I have not checked the U.S. risk of bail-ins for years. When I did check, I recall that the greatest risk was for banks that engaged in trading derivatives contracts. This means almost all the largest banks in the country fall into this category and few to none of the local banks. Also, as best I know, credit unions would also not be subject to “bail-in” risk.

The ability to withdraw precious metals stored in bank vaults is not only a concern for the private sector. The government of Venezuela for two months has been trying to withdraw its 14 tons of gold reserves held at the Bank of England. The Bank of England has been dragging out the process, saying it has sought to clarify what Venezuela wants to do with the gold.

It should never matter why a party wants to withdraw their physical precious metals from bank storage or a safe deposit box. The important feature is that the owner has control over such assets, including the ability to withdraw them from banks at their own discretion. To the extent that the owners may not have control over such assets, can they truly be considered the owners?

The next time there is a major economic downturn in the United States or worldwide, many people who think they own physical precious metals stored in bank vaults or bank safe deposit boxes may find that there are restrictions put on those assets.

Update on U.S. Mint’s Numismatic Forum

One part of my column on the U.S. Mint’s Numismatic Forum two weeks ago might have left an inaccurate impression as to the activity of the U.S. Mint’s bulk sales program. As I stated in the original article, the Mint’s bulk sales manager, Robert Fickling, said that as of January 2018, there were relatively few participants in the program who had made sufficient purchases to merit higher tier discounts from the U.S. Mint.

Fickling last week supplied updated information. As of September 2018, there were 16 dealers who made more than $1 million in bulk purchases to get to the 5 percent discount tier. Another 11 surpassed the $250,000 purchase threshold to reach the 4.5 percent discount tier. Also, 21 dealers had accumulated more than $50,000 in bulk purchases to attain the 4 percent discount tier. So, in all, more than half of the 2018 participants in the U.S. Mint’s bulk sales program achieved more than the base discount tier of 3 percent. This is a far more active program than initially indicated during the forum.

Update on retail selling prices for U.S. 90 percent silver coins

Many national sellers of physical precious metals post their current selling prices, or at least their formulas for product, on their websites. For years, I have been tracking the posted prices and formulas of my company’s competitors for U.S. 90 percent silver coins as part of structuring our own prices. When I first began reporting such formulas in this column, there was a wide disparity among dealers.

When I did my latest price check on Monday this week, I found that differences in prices have become much tighter. Twelve of 15 companies were offering to sell $1,000 face value bags of U.S. 90 percent silver coins at prices ranging from 89 cents to $1.24 above the ask silver spot price. Two companies were lower, with the best price at 64 cents over the ask silver spot price.

One company was far higher at more than $5 above the spot price. As far as I could tell, all of these sellers offered free shipping for such an order.

Most sellers were quoting an ask silver spot price within a cent or two of what my company was using at the same time. The company quoting the lowest spot was three cents below what we showed at the time; the highest used a spot price 10 cents higher than we do.

A general rule of thumb I use to judge the relative supply of physical silver available to meet current demand is whether the retail selling price of U.S. 90 percent silver coins is above or below a 2 percent premium. When the retail prices are higher than 2 percent, as they are now, that indicates that wholesale prices are too high for refiners to melt down these coins to refine them and supply industrial demand. If the retail premium is below 2 percent, then the wholesale prices are trading enough below silver value where refiners can profitably melt down the coins to increase supplies. Therefore, the retail premium at which 90 percent silver coins sell is an indicator of ample or tight supplies of available physical silver.