Gyroscopic Investing

After reading the excellent section on gold ownership in the new book, I had a couple of questions about the Perth Mint.

1.  There is no storage fee for unallocated gold, whereas allocated is 1% a year, right?

2.  Does it matter which authorized dealer you use to purchase your certificate?  I noticed some were in the US, and some were in the UK or Australia. 

3.  If you start with the certificate program, and your holdings eventually exceed $50K, can you switch to dealing with the mint directly?

Thanks!

AdamA wrote: After reading the excellent section on gold ownership in the new book, I had a couple of questions about the Perth Mint.

1.  There is no storage fee for unallocated gold, whereas allocated is 1% a year, right?

I will need Bron to answer this question more in-depth. They have/were/maybe thinking of changing around the program in the allocated department and also offering segregated again in the future if I recall. But yes there is a fee for the allocated storage and the unallocated has no fee right now.

2.  Does it matter which authorized dealer you use to purchase your certificate?  I noticed some were in the US, and some were in the UK or Australia.  

The dealers act as the interface to the mint. I would tend to want to work with an in-country dealer because if you have a dispute in a rare case you will have local jurisdiction for recourse. I'm not sure on Perth's policy of working with out-of-country dealers though.

3.  If you start with the certificate program, and your holdings eventually exceed $50K, can you switch to dealing with the mint directly?

Thanks!

Bron will need to answer this one. If you have $50K or over I would definitely go straight to the mint and bypass the brokers. Just one less thing to have to worry about.

Unallocated gold has no storage fee whereas allocated does. Unallocated gold will close to new inflows at some point with existing holdings being grandfathered, just like we did with closing unallocated silver. We will probably offer a pooled allocated gold at that time, which will have a storage fee a bit lower than allocated.

You can buy and sell through any Approved Dealer, that is part of its flexibility, so shop around for the best deal.

If you do get to $50k you can switch to the Depository Program and deal direct, but we will charge 2% entry fee and 1% exit fee if the account balance is below $250k. You may find that you will get a better rate than that from an Approved Dealer. Keep in mind that once the transaction is completed and you have your certificate, there is no exposure to the Approved Dealer, so dealing direct is just about minimising a small transactional risk. Most Certificate holders stay with an Approved Dealer for the ease of dealing with a local dealer in their time zone.

Thanks very much for the information, guys.

 

bronsuchecki wrote: Keep in mind that once the transaction is completed and you have your certificate, there is no exposure to the Approved Dealer, so dealing direct is just about minimising a small transactional risk.

In other words, if I use one of the approved dealers and they get closed for whatever reason it doesn't matter b/c at that point I can deal directly with the Mint, right?

AdamA wrote:
Thanks very much for the information, guys.

 

bronsuchecki wrote: Keep in mind that once the transaction is completed and you have your certificate, there is no exposure to the Approved Dealer, so dealing direct is just about minimising a small transactional risk.

In other words, if I use one of the approved dealers and they get closed for whatever reason it doesn't matter b/c at that point I can deal directly with the Mint, right?

Yes. The certificate is an obligation of the mint, not with the dealers.

bronsuchecki wrote: Unallocated gold has no storage fee whereas allocated does. Unallocated gold will close to new inflows at some point with existing holdings being grandfathered, just like we did with closing unallocated silver. We will probably offer a pooled allocated gold at that time, which will have a storage fee a bit lower than allocated.

Why would the unallocated gold close?  And what is the negatives to a pooled allocated gold vs unpooled allocated?

Unallocated doesn't attract a storage fee because we use the metal in our operations. However there is a limit to how much working inventory we need, even with increasing sales of coins and bars. If we just kept on accepting unallocated we'd have a situation where the excess gold above our working requirements would have to be stored in our vaults. We would have to pay insurance costs on that excess, but not be collecting any storage fees, so we'd lose money.

Pool Allocated is just a way we can charge storage fees on the bulk excess gold we have.

There is not much difference between the two. Unallocated is backed by metal in various stages of manufacture whereas Pool Allocated is backed by 1000oz (silver) or 400oz (gold) bars. The key difference (or risk) between these two and Allocated is that with Allocated your metal is already fabricated and ready to ship or collect.

With Unallocated or Pool Allocated, it needs to be converted into whatever size coin or bar you want. Normally we would pull that from our finished good stock, but if everyone wanted to take physical there would be a delay as we melted the big bars down and made the smaller stuff. That "conversion to physical" delay is the key risk you need to think about.

Thanks Bron. This forum is fortunate to have industry professionals like you around to answer these questions.

craigr wrote: Thanks Bron. This forum is fortunate to have industry professionals like you around to answer these questions.

Yes, definitely.  Thanks!