The Conundrum of Gold Storage
One of the questions new gold investors always ask is, "How do I store physical gold?"
With inflation continuing to run hot, and Central Banks around the world increasing their gold reserves, the shiny metal has gained increasing prominence in investors’ portfolios. The benefits of allocating a portion of one’s portfolio to gold are numerous. Physical Gold can act as an inflation hedge, has no counter-party risk, and is often non-correlated to other paper assets such as stocks and bonds. Additionally, physical gold and silver avoids cyber-security risks such as phishing attempts, malware, and account hacks.
For the purposes of this article, lets ignore the gold ETF’s, mining stocks, and digital gold companies and let’s focus on physical precious metals. Whenever I mention physical gold and silver on social media, the one issue that seems to always arise is storage. There are many different opinions on storing physical precious metals, which often can elicit strong emotional reactions. Generally, you have two camps, those that advocate the philosophy of “if you don’t hold it, you don’t own it” and those that are willing to trust third party storage facilities. In this article I will explore the benefits and risk to each philosophy.
“If you don’t hold it, you don’t own it”
The idea of one not truly owning physical gold unless it is in your personal physical possession makes sense. Physical possesion truly eliminates any third-party risk in terms of your metals being lost, misallocated, stolen, or even confiscated. The idea of one needing to being in physical custody of their gold stems from those investors buying physical gold in order to prepare for a catastrophic disaster or emergency, such as nuclear war or large-scale civil unrest. The proponents of this idea believe that when such a large-scale emergency occurs, the fiat money system will collapse and gold will become immensely valuable. In this emergency situation, having gold stored in a vault somewhere far away will not be beneficial to the investor. As society breaks down, it is unlikely that one would risk driving to a vault to collect their gold. Additionally, as society collapses and “law and order” are replaced by looting, the gold in a vault is likely to be stolen within a matter of days, probably by insiders.
These investors are probably correct that in a severe disaster leading to the breakdown of society, one’s gold that is not in their physical possession is probably gone forever. However, this complete disaster scenario is very unlikely to occur. That is not to say it is impossible, as history as shown However, in this type of severe disaster that causes a complete societal breakdown, it is unlikely that people will be placing much value on gold, at least initially. These types of disasters often lead to a scramble for necessity items like food, bullets, water, shelter, etc. This is not to say that after the disaster passes and society begins to rebuild that gold will not retain its value, it just seems imprudent to base your investment plans on a society-wide collapse.
There are additional risks to storing holding your own gold. First, where do you store it? Generally, your choices are to bury it or store it in your home. Both options come with their own risks. If you store gold in your home, the biggest risk is theft. Since there is no way to prove ownership of physical gold as it is generally not tracked by serial number, digital trail, etc., it becomes essentially a “bearer bond”, the person who holds it, owns it. The thief will likely have no trouble selling the gold to any local dealer for cash. To prevent theft, you can hide or bury your gold, but this comes with its own risk, the risk of loss. There have been numerous articles about people finding one hundred-year-old gold stashes in the walls of their newly purchased homes. If one hides their gold, or buries it somewhere and no one knows about it, it can never get passed on to future generations, meaning, the wealth dies with you. Additionally, burying gold is very risky in 2023 as metal detectors, drones, and satellite can allow buried items to be found even at depths below 100 feet. Flooding and fire are also a huge risk.
So how does one eliminate the risks of theft, loss, and natural disasters to their gold investment? Store gold in a reputable, insured, third-party storage facility. For a monthly fee, a storage facility will hold precious metals in a secured vault. The best facilities will contain 24-7 security, level III security certification, and often have insurance to prevent against loss. The idea of storing gold with a third-party facility has been around for thousands of years. The first banks often would store gold for customers then issue them “paper notes” certifying that the client had enough gold to back up the paper. This was much easier than carrying gold bars and coins around.
Fortunately, it is much more likely for the world to face a situation less severe than complete societal collapse, which means that storing gold in a secure facility can still provide safety for your investment in most disaster scenarios. During the hyper-inflation in Germany in the 1920’s, paper money began to lose its value at an alarming rate. Gold gained immensely in value during that time, but society still functioned. People went out to the movies, restaurants, nightclubs, etc. If this type of scenario were to hit the United States, gold would increase immensely in value, but one would still be able to access their gold located in secure vaults if needed.
There are additional advantages to storing your gold in a reputable storage facility. Often, you can easily buy/ sell gold within the company that stores your gold. This increases liquidity as you can just call up the company, sell your gold to them and they will either mail you a check or direct deposit you’re the value of the gold in USD. This is of course much easier than trying to sell physical gold located in your home either by mail or at a local metals dealer.
As with anything in life, there are risks associated with storing your metals with a third-party storage facility as well. The risks of storing your gold with a third-party facility are mainly fraud and insider theft. A savvy gold investor can mitigate these risks with some research and due diligence.. First, an investor needs to make sure the storage facility does not co-mingle their gold and silver with other customers. There needs to be a separate and bifurcated holding of each client’s gold and silver, that can be accessed when needed. Secondly, the facility needs to be subject to third-party audits to eliminate potential fraud. Finally, the storage facility needs to allow customers to view their gold holdings either via webcam or in-person to ensure that their precious metals are being stored and accounted for properly.
I personally use Money Metals Exchange to purchase, sell, and store my precious metal holdings. I cannot say enough good things about this company. They have excellent customer service, and a real human being answers the phone when you call them! They are extremely knowledgeable, helpful and will stay on the phone as long as needed to get your problem solved. You can purchase precious metals online through their website and have them shipped right to their storage facility in Eagle, ID. Their storage facility passes all security requirements as it is stored above a sheriff’s office, is insured by Lloyds of London, and they allow clients to view their precious metals holdings. To access the money metals exchange, here is a link to purchase gold, silver, and review their storage facility.
No matter how one chooses to store their physical precious metals it is prudent asset allocation to have at least some of your portfolio allocated to this asset class. As the risk of inflation, cyber-attacks, and war increase, the power of the US dollar hegemony is decreasing as other countries look to replace the dollar. The amount you allocate towards precious metals is a decision that is personal and depends on your personal financial situation.
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**As Always, this article was not financial or legal advice. For financial or legal advice, please consult with a licensed financial advisor or an attorney for your particular financial situation.**