Storing your Gold
If you're lucky enough to have an investment in gold, whether it is bullion, coins, jewellery or raw material, developing an effective storage and safe management process is essential. Because it is a 'noble' metal, gold generally doesn't need special storage to maintain its physicality and value. However, it does need safe and secure storage. Gold is also quite a compact material and wealth store, which means there are various flexible ways to store it without great difficulty or space requirements.
Safes
If you have a safe, you must use it. If not, consider buying a safe. Ensure it's manufactured from a reputable company to recognised quality standards and professionally installed. Gold won't corrode or tarnish, unless it is subjected to unusual and extreme conditions such as contact with metallic mercury or other chemicals. This means that your safe can be sited fairly flexibly, although consider first whether it's likely to be used only to store gold, or whether you are likely to also hold other items of value in there which might require more targeted siting and stable storage conditions.
Bank Safe Deposit Boxes
Many people, especially professional investors, prefer to use bank safe deposit boxes and most banks provide this service for a small annual charge. By law, money deposited in a bank becomes both the bank's liability and its property. It becomes the saver's asset simultaneously, meaning that if the bank fails, the saver must join the queue of creditors and accept what return they can (beyond the established amount per institution guaranteed by the government). This sum changes, so check before depositing large sums into any one institution.
The Benefit of Bank Safety Deposits - Custody versus Banking Law
However, there is a way to deposit wealth into a bank and have it remain the saver's private property and that's by entering into a safeguarding contract. At this point, the applicable law changes from banking law to custody law. The custody arrangement offers the owner safety but no other benefits that are traditionally associated with money accounts, such as interest. The bank is paid a fee for holding onto the property. However, it is held safely on the bank's premises and if the bank fails, it must be returned in its entirety. What many asset holders don't realise is that they can deposit gold and other assets, even cash, in a bank safe deposit, without it becoming the bank's liability. This is an important distinction for any investor looking to store gold safely and should be explored and discussed with the bank before entering into any agreement. These two types of treatment, whether storage custody or gold 'account', have similar names, referred to in the gold industry as 'allocated' or 'unallocated' storage.
The Difference Between Allocated and Unallocated Gold Deposits
Allocated gold is deposited under a custody agreement, as numbered bars, held on strictly labelled shelves. It remains the property of the owner, despite being held in a bank. This keeps it safe from banking insolvency, but means that it won't attract interest payments or other benefits associated with banking accounts. The investor pays for storage and the cost represents the technical and security requirements needed for safe storage, which are strong vaulting systems, careful technology usage, high tech security and computer systems and strict monitoring and process controls for the human factors involved. The fee also helps the courts establish that the relationship is a safeguarding one rather than a bank deposit.
Cover against theft is important with allocated gold, as it remains the owner's property and the bank has no legal liability, beyond its duty of care. If for example, the bank were victim of an extremely high-tech and advanced theft incident that they could not have 'reasonably' prevented, the owner will bear the loss. In practice of course, this is extremely rare.
Unallocated gold on the other hand is held in accounts that are referred to as a 'metal' or 'pool' account. It becomes part of the bank's working capital and can be used by the bank for profit, meaning that the gold owner is exposed potentially to bank insolvency. However, it will tend to be marketed more aggressively and sometimes be 'free' for storage, which is a misnomer, as it will be in usage and usually not tangibly stored by the bank making use of the asset.
The Gold Storage Process in Safe Deposit Boxes
Safe deposit boxes are popular with some investors who wish to avoid the charges for bank custody of allocated gold and avoid the notional status of gold held in unallocated accounts, which can be used by the bank. However, the gold's integrity can be lessened within the storage box.
A bullion bar bought on the professional gold markets will be refined by an accredited refiner and given a serial number stamp, denoting a minimum purity of 99.5%. This is called assaying and the bars that have passed the profession's strict scrutiny will be termed 'Good Delivery Bars' and retain this status for as long as they remain in the gold bullion dealer's community of vaults. Every movement between these vaults is recorded, to make a 'chain of integrity', which will break if the gold is removed from the custody of the bullion dealing community, for example, to be placed externally in a safe deposit box. Gold that is kept within the community will receive a better price at sale, as it will be accepted by the professional buying community at its face value. Gold that has been tracked as leaving the recognised vaults system will instantly devalue.
Offshore Accounts
Many investors will prefer to keep their gold bullion offshore, in case of crisis within the domestic economy and for tax haven benefits. This approach is often attacked by those who blame 'hoarders' and persons of high net worth from allowing wealth to circulate within the economy for economic good and particularly within the current economic climate. Many governments are being pressured to create legislation against these people, both to gain the public vote and for fiscal means. Switzerland has long been viewed as an ideal haven for the world's rich, although setting up custody arrangements in Switzerland is not immediate and will take time. Money laundering is of great concern to the reputation-conscious Swiss and they will take a month or two to plan new custody arrangements and carry out comprehensive banking checks. As ever, charges will apply.
General Management
Particularly if you are storing gold on your own premises, distribute it well across different safe caches. A surprising number of people do admit to storing gold in lofts, under floorboards or even buried in the garden. It's not recognised safe practice, but does seem to work for a few!
Speak to your Insurance Adviser
If you keep gold on the premises, your insurance policy will be affected. Speak to your adviser for specialist advice, as you may find a regular policy is compromised, unless items of lower value, such as jewellery, are being stored on the premises. Large sums should ideally always be safely stored in the vaults of a professional institution.