Gyroscopic Investing

Vanguard founder Jack Bogle says there’s a good possibility that private commodity exchange-traded funds (ETFs) couldn’t deliver the underlying physical commodities if their investors demanded they do so.

“The commodities part of the public ETF market is not that large,”? Bogle told CNBC. “It's only a small portion of the public market.”?

“When you get over into the private side, individual ETF commodity pools, there’s a huge risk of that. Nobody knows how big ut is because you don’t have disclosure.”?

Which is why Kyle Bass and other hedge fund managers have eschewed gold ETFs in favor of buying physical gold.

Read the rest here... http://www.newsmax.com/StreetTalk/Bogle ... /id/413797.

Yeah...who knows.  I felt a lot better after I put the bulk of my gold into coins that reside in a safe deposit box. 

Adam,

Do you get nervous that if the bank was robbed you'd be out the gold coins?

I tend to think splitting one's gold between ETF, deposit box and home safe is probably the best way to split it.  I don't really know the risks of deposit boxes.

moda0306 wrote:
Do you get nervous that if the bank was robbed you'd be out the gold coins?

I do get nervous, and not just about robbery (bank holiday, natural disaster).

I agree it's good to spread out your holdings. 

I still have about 1/3 in GTU.

I'm probably going to put some in a Canadian bank next time I go there.

For the record, I think it would be tough fo a robber to get anything out of a safe deposit box.  It requires two keys to open the box...I have one, and the bank has the other.  The cabinet that holds all the deposit boxes is huge and would be almost impossible for someone to make off with.  I'm sure there are ways to break into one, but I think it would take a group of very good robbers.

Adam1226 wrote:

moda0306 wrote:
Do you get nervous that if the bank was robbed you'd be out the gold coins?

I do get nervous, and not just about robbery (bank holiday, natural disaster).

I agree it's good to spread out your holdings. 

I still have about 1/3 in GTU.

I'm probably going to put some in a Canadian bank next time I go there.

For the record, I think it would be tough fo a robber to get anything out of a safe deposit box.  It requires two keys to open the box...I have one, and the bank has the other.  The cabinet that holds all the deposit boxes is huge and would be almost impossible for someone to make off with.  I'm sure there are ways to break into one, but I think it would take a group of very good robbers.

I have a safe deposit box with some of my gold in it. Same two-key design. If someone knew what they were doing, it would take them about 10 seconds to open it with some kind of high-tech liquid nitroglycerine or something. I have my box insured through Hugh Wood for a reasonable price (0.31% of the total value of the bullion coin collection, with a mandatory $250 deductible). Helps me sleep at night even if it isn't entirely a failsafe.

http://gyroscopicinvesting.com/forum/ht ... 24#msg4124

Gumby,

.31% isn't bad at all, IMO.  How much is the box itself annually in proportion to the gold in it?

Do you insure any gold in your home?

I wonder how much more expensive that would be.

moda0306 wrote: Gumby,

.31% isn't bad at all, IMO.  How much is the box itself annually in proportion to the gold in it?

Do you insure any gold in your home?

I wonder how much more expensive that would be.

The box is $29/year. The first year was free for opening up a business account with them too. I don't insure (or keep) gold in my home. I assume the premiums would be higher, which would imply that insurance companies believe home-storage is a riskier way to own gold.

Hugh Wood is great though. They really understand coin collection. They will even insure for transportation and mailing of coins (for a fee, of course). Most serious coin collectors use them. Gold dealers (like Tulving) use them too.

I like Chris Rock's analysis of insurance:

They shouldn't even call it insurance. They just should call it ''in case sh*t.''
I give a company some money in case sh*t happens.
Now, if sh*t don't happen, shouldn't l get my money back?

Oh.. and you can call them and just re-value your collection if you think the price of gold has changed enough to warrant a change in your protection. They send you an invoice for the change and that's all there is to it.

Gumby wrote:
I have a safe deposit box with some of my gold in it. Same two-key design. If someone knew what they were doing, it would take them about 10 seconds to open it with some kind of high-tech liquid nitroglycerine or something. I have my box insured through Hugh Wood for a reasonable price (0.31% of the total value of the bullion coin collection, with a mandatory $250 deductible). Helps me sleep at night even if it isn't entirely a failsafe.

http://gyroscopicinvesting.com/forum/ht ... 24#msg4124

Gumby--

I remember reading that link a while back and thnking that it was a good idea. 

I wonder how often Hugh Wood actually has to pay anything out...

Adam1226 wrote:

Gumby wrote:
I have a safe deposit box with some of my gold in it. Same two-key design. If someone knew what they were doing, it would take them about 10 seconds to open it with some kind of high-tech liquid nitroglycerine or something. I have my box insured through Hugh Wood for a reasonable price (0.31% of the total value of the bullion coin collection, with a mandatory $250 deductible). Helps me sleep at night even if it isn't entirely a failsafe.

http://gyroscopicinvesting.com/forum/ht ... 24#msg4124

Gumby--

I remember reading that link a while back and thnking that it was a good idea. 

I wonder how often Hugh Wood actually has to pay anything out...

I would LOVE to know how often safe deposit box thefts occur.

I would think it would be very rare, since the bad guy has to get into the vault in the first place and there are normally alarms, cameras and other security measures to deal with.  The more common sort of theft seems to be to grab whatever you can in a few minutes (normally the bad guys never even get in the vault).

It would surprise me if there are many master thieves who are targeting neighborhood bank branch locations with safe deposit boxes.

Another disincentive to hitting safe deposit boxes (I would think) would be that you have no way of knowing which ones have good stuff in them.  I assume a lot of them are empty or have family heirlooms and documents that no one else would care about.

MediumTex wrote: I would think it would be very rare, since the bad guy has to get into the vault in the first place and there are normally alarms, cameras and other security measures to deal with.  The more common sort of theft seems to be to grab whatever you can in a few minutes (normally the bad guys never even get in the vault).

It would surprise me if there are many master thieves who are targeting neighborhood bank branch locations with safe deposit boxes.

Another disincentive to hitting safe deposit boxes (I would think) would be that you have no way of knowing which ones have good stuff in them.  I assume a lot of them are empty or have family heirlooms and documents that no one else would care about.

Yes, I'd be very interested in this as well.  My impression is that bank robbers are usually closer to "Dog Day Afternoon" than "The Italian Job".  And as you said, so much of what's in deposit boxes is going to be things like people's wills, birth certificates, passports, heirlooms, tawdry photos, whatever.

Hugh Wood sounds like a great company to work with, though, to give that last little bit of assurance that things will work out.

I have a safe deposit box with a bank that is located on a military base.  I feel that my items in that safe deposit box are quite secure.  I tend to worry more about possible government confiscation or government action to limit my access to my safe deposit box than I do about my safe deposit box being robbed.  Am I paranoid or do any of you think about the same thing possibly happening - i.e., eventual government confiscation or limited access to your safe deposit box?  I remember my grandfather telling me about his experience with the US going off the gold standard in the 1930s and the requirement for citizens to turn in their gold.  All in all, I feel more secure with my most of my items in a bank safe deposit box than having it all at home.

Adam1226 wrote:Gumby--

I remember reading that link a while back and thnking that it was a good idea.  

I wonder how often Hugh Wood actually has to pay anything out...

It can't be very often for 0.31%. Mind you that was just my premium — based on bank location, construction materials, distance to police department, my CLUE file (from other insurance claims), etc. Everyone's premium is different.

Hugh Wood is just the insurance broker. They aren't an insurer. They just match you up with the proper insurer for your bullion collection. The difference is that unlike most agents, they actually understand bullion insurance. For instance, Tulving uses Hugh Wood, as their broker, to get their insurance from Lloyds of London.

If you plan on contacting Hugh Wood for a quote, be sure to call their Philadelphia office:

The Bellevue
11th Floor
200 South Broad Street
Philadelphia PA 19102
http://www.hwint.com/usa/

Main Phone: (215) 732 0500

bob wrote:I tend to worry more about possible government confiscation or government action

Speaking of which... Here's a timely news story from the Netherlands...

How Bankrupt Governments Will Confiscate Your Gold

On the surface it seems like a bit of fear-mongering, but you can kind of see what direction governments are already moving in.

The only solution to this problem is diversification. Any bank can be broken into with an insider. He/she will tell the thieves when to come in and which safe deposit boxes to break into. There is no alarm or security on earth that can defeat a robber with an insider on his team. I can easily come up with scenarios where gold could be stolen from even Fort Knox. I'm sure all of us can.

Spreading your gold portion between your safe at home, a safe deposit box, and 2-3 ETFs is the best solution. Yes I'm sure at least one of the ETFs is rotten. But all of them? Unlikely.

I should also mention that having an insurance plan for your gold probably makes it more known to whatever governments and/or investigators might be snooping around your life — should that be something you're concerned about. You have to submit the location of the gold in your insurance forms. And no, the insurance doesn't protect it from government confiscation. So, some people might be uncomfortable releasing this information on paper.

Similarly, one can take a tax deduction for your safe deposit box on your tax return. But, some people choose not to take the tiny deduction since it's basically an official declaration of having a safe deposit box on your tax return.

I believe that the canary in the coal mine for gold confiscation will be when the government stops selling gold to anyone who wants to buy it in the form of gold bullion coins.

Harry Browne wrote about this topic a little, and seemed to conclude that there would be no point in confiscating gold in a post-gold standard world.

Can anyone think of any point in a government confiscating gold?  I really can't.  Wouldn't an action like this be in direct contradiction of the conventional wisdom among policymakers that gold is a barbarous relic, or as Bernanke put it, we only value it based upon some misguided sense of "tradition"?

Does anyone really think that the curernt Republican House of Representatives would go along with something like gold confiscation from private citizens?

I try to think about this matter from every different angle, but any way I look at it the idea seems to be DOA (at least in the U.S.). 

MediumTex wrote:
Does anyone really think that the curernt Republican House of Representatives would go along with something like gold confiscation from private citizens?

I try to think about this matter from every different angle, but any way I look at it the idea seems to be DOA (at least in the U.S.). 

In my mind the bigger risk is that they tax the heck out of it...more so than already.

Adam,

Then there could be an advantage to holding it and selling it more secretively, but only if you want to risk tax-evasion.

I think the best way to hedge against high future taxes is to keep a decent chunk of your money in a Roth account.  Yes, the gov't could eventually tax those too, but within the politically feasable framework MT mentioned, I don't think they'd do this before taxing traditional accounts and ordinary income at MUCH higher rates than they are now.

I am inclined to look into owning physical gold within a retirement account.

Just read most of the replies.  Very interesting discussion.  A few quick thoughts...

1. Storing any significant quantity of gold at home is ALWAYS high risk.  I don't care how fancy your security system is, how many dogs with big teeth you have, or how many firearms you keep on your person and in every room of the house.  Violent home invasion is a far more common crime than bank robbery these days.  Even if you manage to repel the attack without you or loved ones getting killed, is it really worth it?  And seriously, who wants to live in a fortress?

2. Bank robbery has gone out of style like bell bottom pants.  Serious (read smart) crooks don't rob banks anymore.  The risk reward ratio really sucks.  The incidence of unsolved bank robbery in the US is among the lowest for major crimes.  There are just too many ways of getting caught and the FEDS get involved right away.  Most bank robberies these days are done by idiots in need of some quick cash or who are trying to make a name for themselves on the street. 

3. In line with #2 above the idiots who do rob banks almost never go near the safe deposit boxes, and for good reasons.  As noted in an earlier post they would need to know what was in which boxes and there are so many.  They would need sophisticated means to break into them and they would need TIME unless they knew which box(es) to hit.  Time is a luxury bank robbers don't have.

All of which said, I am a big fan of diversification.  One easy way to reduce risk is to store your physical in more than one safe deposit box at different bank branches.  The added expense is minimal.  As for gold confiscation, while I would hesitate to rule anything out, I view that as an extremely low risk.  The US is too big to undertake large scale gold confiscation without wreaking havoc on global financial markets.  Huge numbers of Americans own gold stored overseas, either directly or via ETFs.  The implications of an attempt to to seize all of that are mind boggling.  I need an aspirin just thinking about it.  Bottom line: It's not 1933 anymore.  The world and the US have changed.  And so has case law and the composition of the Supreme Court.  I seriously doubt confiscation would fly in the courts today.

Anyways that's just my two cents, which with another buck will get you a small cup of average at best coffee.

I think the biggest risk to storing gold in a bank is an indefinite bank holiday due to a financial collapse/depression. Banks are inherently unstable. The government telling them to lock down and not open, trapping your gold inside, is a possibility.

MT,
i think the likely scenario where the gov't would desire to confiscate gold from the population would be in a run-up to re-establishing a link to gold bullion of the fiat currency. This could be needed if there were a dollar crash of the likes of Weimar Germany or Zimbabwe. In order to re-establish credibility, gold could be touted as a/the hitching post for a new currency.

If you are interested in reading a non-fiction account of a recent bank vault robbery check out "Flawless" by Scott Selby and Greg Campbell. The thieves opened 100+ safe deposit boxes and stole somewhere between 100 and 400 million dollars worth of stuff in one night.

But to give some perspective on how unlikely this is at your local bank branch, the thieves were also an elite group of Italian criminals who cased the vault for two years and targeted it because it was packed full of untraceable diamonds.

It's far more likely that the government will send people to freeze all safe deposit boxes than a professional bank robber will steal it from there.

More likely than both of those is a natural disaster that destroys the bank.

I'd estimate the chances of anything happening are quite small.

TripleB wrote: It's far more likely that the government will send people to freeze all safe deposit boxes than a professional bank robber will steal it from there.

...and even that didn't happen in the 1930s. When gold ownership was illegal, the order to turn in gold was basically voluntary (people were also still allowed to own very small volumes of gold bullion). Most people shipped their gold stashes out of the country before the order took place. There was no Gold police seizing everyone's safe deposit boxes. Not to say it can't happen though...