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Bob Coleman
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My mission is to provide individuals the ability and resources to decide what is best for them rather than what is best for others. Understanding and educating clients will build a stronger relationship. The power of change to a more honest environment will not come from one individual fighting... More
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  • Safe Storage for Precious Metals
    Safe Storage for Precious Metals
    From an Expert’s point of view

    I have heard many shows recently discuss the potential liability issues of various vaults, such as, whether or not there is actually the correct amount of precious metals in those vaults.

    There have been precious metal storage facilities, precious metal dealers, or fund management companies on many internet shows discussing the concepts surrounding the recent worries of vault facilities not having the items or the precious metal program not securing the assets they are representing to their clients.    

    A few shows discuss what unallocated and allocated storage represent. Being an expert in the vaulting business and running a successful gold and silver storage program and physical bullion fund, I wanted to clarify some of the misinformation that is going around the internet. Many financial advisors and dealers may also not be aware of the actual differences between the various forms of storage. This is evident when many internet programs assume allocated storage is the most secure form of storage. This is not the case.

    Over the last five years, I have studied nearly every precious metal program in the world. I looked at every program from an investor point of view. This is crucial since many programs are designed for the firms benefit. Cost saving functions, commingling of assets, and large bar purchases are a few items that directly effect the flexibility for the client.

    One of the most critical reasons, I created my own programs is the fact that I did not find one program that had a fiduciary duty and obligation to provide delivery in small deliverable form at any time without certain limiting conditions upon the client’s request. I have been in the investment business for almost 20 years and have seen many different investment programs come and go. Without true accountability to the client, risk needs to be identified and the program needs to be fully understood.

    There are some big misconceptions with allocated storage programs and the companies that offer or sell them.

    For private storage accounts, the most secure way for clients to have items stored is by fully segregated storage. Again, fully segregated storage not allocated storage. There is a huge difference and individuals or institutions need to understand this. If a client wants an actual investment in precious metals that can be viewed anytime, delivered at any moment, and is the exact same bar/coin delivered out as initially bought or brought into the facility, then fully segregated storage is the only option.

    Allocated Storage is a much different concept. To easily explain this, let me provide the definition between segregate and allocate.

        allocate - 1. To set apart for a special purpose; designate: allocate a room to be used for         storage.

        segregate - To separate or isolate from others or from a main body or group.

    By researching and understanding this concept, I have taken great care to look out for the client’s best interest. Individuals must identify whether they want to invest in gold and silver or simply be represented in gold and silver. Let me provide some examples that differentiate between the two types of storage.

    Under an unsegregated or unallocated account, it is very common that an investment in precious metals may be pooled, commingled, or combined with every clients’ positions. However, the similar events may happen with an allocated program. For example, lets say a precious metal dealer or a structured precious metal program are selling 10 clients each, 100 ounces of silver and these clients wish to have the dealer arrange storage for the client’s account. From a cost saving standpoint, the dealer could provide storage in two ways and still provide allocated storage to the client. The first is to have a secure space at a vault facility that would store only metal for a specific dealer or program. The dealer would be responsible for accounting the ounces of metal owned by the client. For simplicity, if a client wanted delivery, the bar of metal bought by the client may not be the same bar delivered to the client. The client may receive 100 ounces of silver but it may be in a different bar or made by a different refiner than originally purchased.

    Using the same example as above (10 clients buy 100 ounces of silver each), under another form of allocated storage, the dealer or management company may simply buy a 1000 ounce bar to represent and allocate the ten client’s holdings in silver. This is a form of allocated storage. The metal can be accounted for and represent the client’s purchase. Under both conditions there is risk that upon demand for delivery the client may not get the same bar he initially thought he bought (may have been sold a brand name refiner bar and only received a generic refiner bar worth less premium) or delivery may be delayed or unavailable (example force majeure) if the bar could not be refined or broken down into smaller units.

    The examples above is one of the most common methods that most gold and silver programs use throughout the world.  

    In a fully segregated account, the structure is much simpler. The metal you buy or have delivered in is separated from all other client’s and dealers’ positions. Legal title is not transferred and the vault or precious metals program has  no ability to change or use the items being stored unless stated in the storage agreement. The metal you receive or sell is the same exact metal initially delivered in. The client is assured that he can take delivery or audit their metal at any time without any risk of encountering a foreign bar or coin.

    For investors that are simply looking for representation of metal and never expect to take delivery, allocated storage may work well. However, if you are buying physical metal and want the ability to take delivery at a future date due to systemic risk, devaluation of currencies, political uncertainties or other circumstances, then one should store metal only in a fully segregated environment.

    Another big myth that is routinely talked about and completely misrepresented is the idea that one must keep his metals in a LBMA or Comex approved vault. The main reasons given is that the charges for assay or transportation  are so expensive it will eat into the principal of the coins or bars. In reality, the cost of an assay is only about $150 per lot of metal. Another excuse used by these organizations is that once the gold or silver leaves the LBMA or Comex vaults the metal is outside the “chain of integrity” and hurts the metal’s value. There is no question if  bars or coins are .9999 fine gold or .999 fine silver and held in a private facility, they are identical in value to metal stored at a LBMA or Comex vault. The real question an investor should ask is, “Do I trust the facility holding my metal?”

    If the storage account is not labeled “fully segregated”, the client looking for potential delivery should have great concern.

    I have dedicated and designed my programs around the client’s best interest. I have viewed gold and silver as a protective asset against the potential risks facing investors. Accordingly, I have structured my program to give clients the ultimate flexibility to make choices that are right for themselves and not for the institution holding their metal.

    Bob Coleman

    Disclosure: long gold and silver
    Tags: GLD, gold silver
    Apr 27 2:26 AM | Link | Comment!
  • Precious Metal Storage......Industry leader is leaving the individual storage business

    When an industry leader offers exceptionally low rates for storing precious metals it is easy to become complacent to the real costs associated with storage. Part of a successful storage program is to offer a service that is competitively priced without sacrificing safety. If the program’s expenses do not meet their incoming revenue, a decision has to be made. What many large depositories are finding out is that the old depository model for storing precious metals is simply unprofitable. The costs associated with storage and insurance are only rising. Some large depositories are raising their fees and others are walking away.

    I heard back in May HSBC might be getting out of the individual storage business for precious metals. At the time it was hard to believe. HSBC is one of the biggest depositories in the world. Well, I just confirmed today that HSBC is getting out of the individual storage business in the USA. Their thousands of clients either have to move their metals or sell them. Strangely, this comes at a time when there is already high investor demand to take physical delivery of their precious metals. 

    I have also confirmed with HSBC that clients have been waiting 3-4 weeks to take delivery of Comex bars and still they do not have their metal. Besides shutting down their individual storage business, HSBC is in the middle of an audit as well. It seems many clients are trapped in the bureaucracy of a large depository.

    Being in the storage business myself, I realized HSBC’s fees for storage made no sense. This might have been a case where HSBC’s individual storage business was not profitable or the fees they were charging were not compensating them for the risk they were taking in storing precious metals. Whatever the case, a lot can be told by the fees or expenses one pays to protect their assets. Please understand the true cost to protect an individual’s asset is not to offer the most inexpensive services.

    Just as I reported last month on the SPDR® Gold Shares ETF (symbol “GLD”) for their unusually low expense designated for storage and insurance, many have started to ask the question.  “Just how safe are my assets when the cost I am paying to have them protected sounds too good to be true?”

    Individuals need to be very certain where they store their precious metals. Storage should be a long term consideration. Ask yourself a few questions:

    How safe is the facility?
    Do they offer fully segregated and insured storage?
    How safe is the surroundings of that facility?
    How safe will the surroundings be in the future? You can store your assets in the safest vault in the world, but if that vault is in the middle of an unstable social or economic environment, how safe are your assets if you need to take delivery?
    How flexible and accessible is the storage program?
    How will the program cope with dynamic political and economic conditions?

    Many assume larger metropolitan cities offer convenient advantages. This is not always the case. I spent 4 years studying this issue and determined the risk outweighs the convenience.

    At IAV we run a private, secure, and competitive storage program for precious metals that offers storage at different facilities throughout the United States. We accept deliveries from the Comex, arrange insured transportation, and offer certain services that simply are not available with form the larger depositories.

    Take your time and evaluate your storage options. Do not pick a program because of its name. Understand how this facility will protect you not only for today but tomorrow as well.

    Bob Coleman

    Jul 16 3:30 PM | Link | Comment!
  • A Memorable Delivery Experience

    A Memorable Delivery Experience

    For those who remember, I wrote a letter asking about taking delivery from the COMEX. Well I would like to tell you about a very educational experience.

    Recently, we took a delivery from the COMEX. The process was a bit cumbersome but very enlightening. First, I would like to say that the process of dealing with the custodians was very professional. However, let me begin my story of amazement.

    The silver and gold were to be prepared and packaged for shipment by the existing custodian. As I understand it, this was part of the delivery out fee. We will get back to the packaging later.

    The metal was arranged for a pick up and delivery using a very well known armored carrier. Initially, everything was going as planned. After the metal was gathered from various custodians, it was on its way to one of our facilities. We were in contact with the armored carrier who laid out a time frame of when to expect arrival of the armored truck. We were told that shipment arrivals usually occur in the morning and with plenty of notice.

    This is when the story gets interesting.

    Three days after the shipment leaves New York, I get a call at 4:50 pm from one of our vault managers. He mentioned if the armored carrier ever called with a delivery time. I told him the armored carrier was supposed to call us with an estimated time of arrival. Our vault manger paused and said, “I have a big armored truck sitting outside.” He mentioned to me later that the truck was fairly weighed down in the back with the headlights shooting up in the air. Anyone in the armored transportation business would say at this point we have a problem. An unscheduled delivery, 10 minutes before the vault is locked down, darkness setting in, and a truck with an obviously big payload sounds like a setting for a Jessie James novel.

    But wait it gets better.

    The packaging which the COMEX custodian charged for consisted of pallets of silver with metal bands over the bars. The gold bars were in a simple cardboard box. There was no shrink wrap over the pallets or secured container holding the gold bars. It seemed like a $10 glass bowl bought on the internet was better prepared for shipment than this extremely valuable cargo.

    Somehow during the transportation, the bands on the pallets holding the silver bars broke and some of the bars were scattered in the armored truck. To make matters worse there was no invoice providing an itemized list of bars and their serial numbers. In fact on the invoice, the delivery date was to be two days later.

    Typically, this is a point when you get someone in charge on the phone. Well, that is what we did. We contacted the carrier’s regional transportation official. We told him in most cases a delivery like this is usually not accepted due to risk and liability. After a few words the carrier’s manager said if you do not take delivery we will send the metal back to our regional office, load it on a trailer, and send it back to New York.

    When you are talking several tons of metal, you think twice about moving this around. After we inspected the metal for damage and counted the bars, we accepted the shipment.

    Please understand taking delivery from the COMEX entails some risk. But for many proponents of gold and silver to simply say “have the metal shipped to a business, store it at home, or do not let a third party handle or store your metal,” investors might consider this experience. When you have armed guards show up at your doorstep with a shipment, they are trained to carry out a certain function. They are not there to greet you with a smile like a mailman or newspaper delivery boy.

    Our armored facility is very well equipped to handle deliveries whether scheduled or unscheduled. Fortunately, the experience of our management team turned a potentially costly situation into safe and secure delivery.

    Do not let this story dissuade you from taking delivery off the COMEX. The above story is not your typical delivery and most armored carriers provide a very secure environment for its cargo and the items held in their vault. For us the process is routine. Our facility can support you in preparing the three items requested by the COMEX custodian for delivery, arranging for a pick up and transportation, and securing valuable assets in a fully insured/segregated facility.

    Bob Coleman

    Jun 02 10:11 AM | Link | Comment!
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