The price of gold has risen precipitously since the housing-market collapse and financial crisis of 2008, as you would expect a sound hedge investment to behave.
Gold peaked at over $1,800/ounce in August of 2011 as millions of people were still without jobs and the Federal Reserve scrambled to unveil another dicey round of quantitative easing.
Over the last five years gold has been stable at around $1,250/ounce. The interesting thing is that, as you see from this chart, silver hit a ten-year high of $48/ounce around August of 2011 as well.
The highs for gold and silver peaked during the height of confusion in Washington and at the Federal Reserve.
During that muddled period, gold acted as a hedge against inflation as the Federal Reserve printed money out of thin air and pumped it into the economy in the manic hope of resuscitating an economy the Fed helped bring to its knees with a loose-money policy in the early naughts.
Physical Gold Ownership Overcomes Issuer Risk
Physical gold ownership is a much sounder hedge than gold warrants or gold certificates because the latter run up against issuer risk.
In layman’s terms, issuer risk means that you could lose a substantial chunk of your gold investment if the issuer of your gold investment (e.g., an exchange-traded commodity) winds up filing for bankruptcy, not purchasing the gold or quantities it should, does not have availability of the metal to buy or uses paper to cover your so called physical purchase. Many funds reserve the right not to give you physical gold and many will only convert huge quantities.
That really defeats the purpose of gold assets protecting you against risk, doesn’t it?
Investing in physical gold means you’ll avoid the trapdoor of issuer risk, which is still very much a valid concern based on the number of “invincible” big banks that went belly up in the 2008 financial crisis.
It’s like the possibility of the Titanic sinking: Completely out of the question…until it happens. Physical gold ownership is your lifeboat since gold is a safe-haven asset and an anonymous store of wealth.
And if you look around at countries like Venezuela with an annual rate of inflation of over 15,000% and expected to reach 1,000,000% this year, you start to realize that gold might really come in handy if a crisis of that magnitude comes to our shores.
Three Ways of Storing Your Gold: Reasons Private, Third-party Storage is Best
To this point you’ve heard about different ways of owning gold (stocks, exchange-traded commodities, certificates, gold funds, mining rights, and physical gold ownership) and why physical precious metal ownership trumps them all, especially in a crisis.
But what about storing your gold? There are basically three fundamental ways of going about it: keep your gold on your property, trust your gold to a bank’s safety deposit box, or pay a small fee to a private storage company to house your gold.
The third option is by far the best in terms of security, privacy, and quicker liquidity. When you store gold at home you do, indeed, have privacy but security is questionable even with insurance and liquidity can be a problem.
Drawbacks of Home and Bank Storage
When you store gold in a safe at your home you would probably have to someday return your bars to a dealer to sell or refine, as that’s part of the verification process with most dealers. In a crisis, that might squander valuable time, and it definitely costs a pretty penny.
How about banks? Well, those are fraught with their own problems – issuer risk, privacy, most banks do not offer insurance, security ids often questionable, the looming threat of confiscation, and access are key concerns.
Many specific issues were written about in our blog post here.
Access to your gold might well be a dealbreaker for you when it comes to storing your gold at a bank.
Here’s a scenario that’s happened to thousands of gold investors already. The market makes a huge move and gold is soaring. You want to get your gold while you can. The problem? It’s 5:01 on Friday and the bank just closed.
You’ll have to wait until Monday morning to do anything with a dealer. And then your bank will probably have many questions as to why you want access.
By that time the opportunity may have tragically slipped through your fingers.
Private storage, at least in our case, will open outside of business hours.
Normally there is a small charge for this. But if the government of the country declares a bank holiday we will make access available for free.
Private, Third-party Storage is Still King
Third-party storage with a domestic or international firm can be the most secure, anonymous, and private allocated, segregated storage option for most gold and silver investors.
International is by far the most private and secure option.
Better yet, these firms are in tax-friendly, private jurisdictions like Switzerland, Singapore, and Panama.
For example, here at Fort Kobbe in Panama, we have UL-3 bank level security and only a few prohibited items. Beyond that we don’t care you choose to hold in your safety deposit box.
Panama also has some of the strongest privacy laws in the world to keep you safe.
Fort Kobbe also offers 100% insurance for your gold or silver investment and your own private key to your safety deposit box or open allocated, segregated storage for large amounts.
Confiscation insurance is also available on request.
Private safety deposit boxes are almost tailor-made for storing gold: Gold’s compact and incredibly valuable per volume. A small private safety deposit box should run you only about $400 per year. Depending on options you’re looking for.
A mid-size private box could easily store tens of thousands of dollars worth of gold and silver whereas a large box can fulfill all of your needs and provide millions in insurance.
These small rental fees could even be tax deductible and you’ll have around-the-clock access to your precious metal investments.