Gregor Gregersen: Singapore Gold Dealer - Why Bullion Secured P2P Lending Is Safer Than Bank Credit

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Includes: GLD, SLV
by: Palisade Radio

Summary

How are bullion storage facilities rated?

How P2P bullion lending works?

This system opens up interesting interest arbitrage opportunities.

A good way to protect wealth outside of the USA.

It has been getting increasingly difficult to get bullion out of North America, but leading bullion supplier in Singapore, Gregor Gregersen's business may make it unnecessary to do so.

Gregor started silver bullion in Singapore, and Singapore now has some of the biggest storage facilities for bullion in the world. This offers bullion protection from US nationalization with a local company with no ties back to the US or Europe.

The peer to peer lending business model is safer than bank credit because it is bullion backed by 200% of the loan value in insured bullion. Gregor offers a detailed explanation of the mechanism of lending and borrowing.

Palisade Radio Host, Collin Kettell: Welcome back to another episode of Palisade Radio. This is your host Collin Kettell. Returning with us on the program today is Gregor Gregersen. He has quite an operation out of Singapore. He is a bullion dealer and also owns a storage facility. Gregor, welcome back to the program.

Founder, Silver Bullion Pte Ltd., Gregor Gregersen: Hello Collin. Thank you for having me.

CK: Absolutely happy to get you back on. Just for our audience members to know your websites are www.silverbullion.com.sg and www.thesafehouse.sg. Could you just give us a brief background on how you got into the silver bullion space?

GG: Well, I used to work in Germany and I used to pay 80% taxes. I was quite unhappy doing that and I did trips around the world. I look at different countries and I found Singapore. I really like the place. I managed to move to Singapore and I managed to reduce my taxes to less than 7% doing the same thing I did in Germany so I ended up settling here. But as I moved here there was no place to buy physical silver back in 2009 and that is pretty much how Silver Bullion started.

The reason I wanted to buy physical silver was because I was working in a trading room for Commerzbank, Germany's second biggest bank, building compliance systems and software systems. I pretty saw the effects of counter party doubts coming up these banks and a potential banking default. I realized that owning precious metals was the way to go because you could actually own precious metals as opposed to it being owed to you. I put one and one together and I said, "Okay, what we ought to be doing is storing silver and gold in Singapore and storing it in a way that protects you in a systemic crisis." That was the beginning of Silver Bullion.

CK: Fantastic! Your background as I remember, correct if I am wrong, is a bit in computer programming which is worked into the systems that you put in place at Silver Bullion and in your storage facility. What is the size and the scale of your operation just to give listeners an idea of how large your sales are, and also the size of the storage facility which is a world class new facility, fully insured? Tell us a little bit about that.

GG: Okay, well, as far as sales in US dollar terms we had about $220 million in sales so far. Currently, we are storing around US$ 95 million worth of precious metals for customers at our storage facility. The storage facility, we build it because we are literally running out of storage space in Singapore. We used to outsource to the Freeport which is another vault. There are plenty of gold storage capacity but a small silver was moving in so I was getting quite tight. We had to build our own facility. We did it also because when you choose a jurisdiction where you want to store your bullion you also ought to be looking who you are storing it with. If you are storing it with, say, a US-based company, for example, and if you are planning to protect the bullion from a potential US nationalization, then you are going to have a problem because a US company, whether operating in Singapore or somewhere else, is ultimately going to be following US law.

I felt that to really protect bullion you are going to have to have a local company which does not have exposure back to Europe or the US. There was no company in Singapore or no vault in Singapore which was able to do that. Between the fact that we are running out of storage space for silver especially and because of the jurisdictional issue I was just mentioning, we pretty much decided that we will be investing in setting up this vault. The vault can hold around 600 tons of silver in a fully state-created manner and around 30 tons of gold. The two are separated because they have different security ratings for gold and silver. That represents about over 1% of worldwide above ground known silver reserves according to the Thomson Reuters. We are pretty much the biggest storage facility in Singapore for silver.

CK: Yeah, most people who I would ask who know anything about storing physical silver or gold would doubt Singapore as the number one jurisdiction in the world; kind of ironic that you filled a niche there. I know that Brinks has a facility. You could probably name the other ones in Singapore. But you figured out that they were not fully insulated as they were US companies or associated the US for US investors to store their metal. How many different facilities are there in Singapore?

GG: Well, you see when you build a vault you have to decide whether you want to do what I would call a show vault, meaning a vault which is a place you want to bring people. The Freeport is such a vault. I mean it is a very impressive sort of building. It was originally meant to cater to ultra rich people's Picassos and art collections, Christies is in there and so on. That is the type of vault that people like to talk about. You might see some videos of the Freeport on the internet. The other type of facility that exists is what I call the hole in the wall facility. These are vaults which are not all that nice to show to customers and so you will not hear much of them. But that is where a lot of bullion is being kept just because it is less expensive to store.

What we built, I would say, is something in the middle. It is not as grandiose as say Freeport which has a $3 million statue if you walk in. But it is quite an impressive facility. It has the same type of auxiliary police security and it is a very sophisticated storage and control system, and so on. We went this middle way to set this up, and as you mentioned the Singapore government, Singapore IE, rated our facility along with the Singapore Freeport as a world class facility. It is the type of facility which people basically want to, let us say, show off.

Whenever we have people coming to the safe house, they are very impressed by the testing we do because as you might know whatever bullion is coming into the safe house goes through a testing lab. It goes through ultrasound testing, electric conductivity testing and xray as well as density, and only at that point it is going to be stored. When somebody comes we kind of show some them how it works. We give somebody a real coin and a fake coin to kind of show off how these test systems work and so on.

We have gone a long way to address issues which most vaults will not really want to address involving vault risk and vault expertise and so on. In most cases it is not there or they do not see a need to provide.

CK: Fantastic! Gregor, as you know the gold and silver space has seen renewed interest over the past couple of months. I was asking you before we got on the call since you are at the level of getting orders coming in in terms of the demands that you have seen in the last year particularly in the last couple of months since gold had that big up day, what has demand been like from your perspective?

GG: For us we have seen a very large spike of especially silver demand in the third quarter and early fourth quarter of last year. When silver was hitting the six year lows that was when demand was really spiking. Our demand, to give you an idea, went up by about 300%. We were moving around 6.5 tons per month of silver at the time. Then towards the end of the year things quieted down a little bit. Right now it is picking up again. We see a bit more gold sales now instead of silver, but it is, again, starting to pick up. It is actually a good thing that we had a bit of a pause because it was getting very difficult to get bullion out of North America. A lot of gold bullion supply actually had to come from either Australia or Turkey, from LBMA refinery just because it was getting very, very difficult to get anything out of North America.

CK: Great! Okay, Gregor, the reason that we are bringing you on the show right now to talk is a very novel and new concept that you and your company have developed; it is peer to peer lending with backing by silver bullion in your vault. This is kind of a foreign concept. You first introduced it to me about a year ago at a conference we met for the second time in Mexico and it is starting to catch on now. You launched it, I guess, seven or eight months ago. It has been very successful. Can you give us a basic breakdown of how peer to peer lending with silver backing works?

GG: Oh, yes. The whole thing started when we had a customer who needed money and he did not quite want to sell the bullion he was storing with us, so we asked if we can provide him a loan. At the time the answer was no and he ended up selling the bullion. But it kind of gave me that idea that I ought to be finding a way to collateralize bullion without involving banks and without reducing any of the protection or setups that we did. As I was working through this it became clear that we did not have to give a loan to our customer. Instead what we could do is provide a framework to allow one customer to give a loan to another customer and the basic idea is that a borrower would have to have 200% worth of collateral for whichever loan he takes. If the borrower were to need $100,000 he would need $200,000 worth of gold or silver. The lender would basically have his bullion locked to guarantee the repayment of the loan is going to happen.

The whole setup is very, very safe because if the value of gold or silver were to fall during the life of the loan to 125% you will send out a margin call. If it goes down to 110% we will liquidate the bullion of the borrower and make sure that the lender is getting his principal and his interest back, and whatever is left will go back to the borrower. It is very unlikely for that to happen because we are running a very conservative system, and for gold to fall 50% in a year for it to trigger some liquidation is quite unlikely. But that is the basic setup. The whole system runs on top of the storage system we built. It is making it unique because as far as I know there is no other system like this.

Peer to peer system normally involves giving credits to people who need the money and do not necessarily have much collateral, and so a lot of the peer to peer systems try to have algorithms to evaluate borrowers and try to figure out if he is credit worthy or not. In our case the borrowers actually end up being very rich individuals which can provide 200% worth of collateral, whereas in a normal system, normally, people end up being short on lenders. In our system we are short on borrowers because there are plenty of people who want to lend some money because it is safe, but we do not necessarily always have enough people who actually want to borrow. But our customers like it because we have bullion reserves. If you want to take a loan the current rates are around 3%, 3.5% or so. You can easily get a loan in Singapore dollars or in US dollars and use them in whichever way you like.

CK: I think one of the natural questions somebody would have is why an ultra wealthy person who has silver bullion deposited at your facility might want to take a loan. I can think of several reasons in my head, but maybe with your experience over the past several months what kind of reasons or what kind of purposes would somebody take out a loan against their silver for?

GG: Well, the most popular use is to buy more bullion. For example, you are buying $50,000 worth of bullion and you decide you want to buy more than that. Well, you can take out a loan for, say, a year and buy another $25,000 worth of bullion. That is one way or one use that I have seen people use that money for. But another example can be interest rate arbitrage. For example, if you can get a loan from us at 3%, 3.5% and you live in a high interest country like Australia, mortgages tend to be 6%, 7%, 8% in Australia, then you could actually use that money to pay off a portion of your higher interest loan and thereby reduce the amount of interest you have to pay.

You might be getting the loan for only one year but the beauty is that you can roll over a loan to another lender at any point in time before your principal becomes due. So in essence you can borrow indefinitely as long as the collateral value allows it. It gives people flexibility. It depends on the borrower on which way you want to use it, but these are the two common scenarios. But if you want you can use that money for just about anything because there are no restrictions because we have the collateral which acts as security.

CK: Okay, right, and Gregor, let us talk about how this actually works. If I am a potential lender I go to your site. I see what the current offers are out for lending money to potential borrowers. I maybe go ahead and I put in an offer to lend X amount of dollars between the bid and ask and maybe somebody goes ahead and says, yeah, they want to borrow the money. At that point how does the transaction work? Is silver bullion acting as the escrow agent and where do I send my money to and how does the contractual agreement work that I know that my money is being backed by silver bullion in your vault?

GG: Well, about the backing, if you are a borrower, you have to have some bullion at our vault. You actually have to select which individual bullion parcels, which bars are you going to put up as collateral by serial number. As a lender you can go in and you can actually see the actual bullion parcel. You can see a photo of them. You can see the tests certificates because we test all the bullion and you can see the latest audit and so on. You have a lot of transparency that the collateral is indeed there and it is genuine and so on, so such a security for the lender.

The lender would have to have some money in their account already or in some cases we can give credit to the lender, but the lender in such a case will have to make sure that the money is in a peer to peer account before the beginning of the loan start date. Once the loan started which occurs four times per month; it starts on the first, the eighth, the fifteenth, and the twenty-seventh of the month, so it is roughly starting every week. On those days the money will be transferred from the lender to the borrower and at the same time the bullion will be locked so that the borrower cannot sell it or take delivery of it and assigned to the lender.

The money will then be in the borrower's account and the borrower can request to have said money sent to his bank account on the next business day or he can use the money to buy more bullion through us or use it whichever way he wants. When the loan becomes mature, then the borrower will need to make sure that the money is back in his peer to peer account by eleven o'clock on the day before the next loan start date.

CK: Excellent! Okay, in terms of how many people have used the system so far and how sizable transactions are you said that there are plenty of lenders out there, which is always great in a system where you are trying to have lenders give money to borrowers, how successful has the platform been in its early days?

GG: Well, it started off quite well. We had an initial testing period where we had a number of users use it pre-launch. We launched it back in August and since then we had about 200 loans with an average volume of about SGD35,000 which is around USD25,000 per loan, so in aggregate close to $5 million worth of transaction going through the system. The good thing for people who wanted to take you to borrow money is that there are pretty competitive offers on there from lenders because the interest rates are determined by supply and demand of lenders versus borrowers. As we tend to have too many lenders the interest rates are going down.

If you go to our site you can actually see each loan, when it was transacted, at which rate, and you can kind of follow how the interest rates are developing because in essence we are creating six markets. We have a 6-month, 12-month, and a 2-year loan in Singapore dollars and in US dollars, so each one of these markets tends to have its own interest rate. What we have been seeing is that lenders prefer shorter term loans, borrowers prefer longer term loans, and so the longer term loans tend to be a bit higher from the interest rate point of view.

CK: Let us finish with one last question on an article that you wrote called Why Bullion Secured Peer to Peer Lending is Safer than Bank Credit. Now that you have walked our listeners through the system that you have built, peer to peer lending with silver backing, I think that the silver backing part is self-explanatory. There is something there for the lender to secure the money against. But tell us a little bit about the article and the main thesis there.

GG: Yes. First of all it can be silver, gold, or platinum, so it does not just have to be silver. It can be any type of bullion that is being used as collateral. The article about having your money in the bank account versus having it backed, the basic idea is that many people do not understand that when you put money into a bank that money is no longer yours, instead you are becoming a creditor to the bank. The bank can use that money in almost any way they want and they only need to keep a small amount of that money as a reserve.

In the article I am mentioning Italian banks in particular because they are extremely vulnerable right now. The reason I am saying this is I have a personal experience. I grew up in Italy for 12 years. My dad had vacation rentals in Italy. We managed to sell these villas in 2007 just before the crash happened. Since then when we sold them, we sold one villa, for example, for EUR2.7 million and the buyer ended up financing EUR2 million with the bank. The villa buyer ended up going bankrupt. He never paid off his loan. The villa went back to the bank, but the bank was unable to sell it and it was just kept on the books and so on. The villa is now being auctioned off in public auction, but it didn't get sold. They had a second public auction. It still did not get sold. Then they had a third public auction and it is now going for 20% of the original purchase price. That means that the bank lost about EUR1.5 million on this loan.

This has been happening all over Italy. It has been happening because in Italy they have some laws now where if you were to rent a property and you renter does not pay rent, it will take three years to kick them out. A lot of people do not want to rent anymore. This, plus increased taxes, basically made it very unattractive to have investment property in Italy. In turn that is causing banks to have a huge problem because the mortgage that they gave are now all under water or many of them, and also in Italy we have four banks which actually went bankrupt at the time.

It is just the tip of the iceberg because these banks are all sitting on mortgages which are non-performing. It just illustrates how if you have your money with the bank, depending on the account, a portion of it might be insured the government. But if you have certificate of deposit or you have more than a certain amount, then you are really dependent on said bank not getting into trouble, and many of these Italian banks are in trouble. The Economist just put an article I think last week on this issue.

You got to look from your risk perspective and you will find that banks really are not that safe. Putting your bullion or you are lending money to another individual with 200% worth of gold, which in turn is fully insured, that is definitely a much safer setup. It is a setup which can withstand a financial crisis because the bullion will still be there in a financial crisis and you can still be sure that you get your money back. That is basically the gist of the article.

CK: Okay, well, Gregor, thank you so much for coming back on the program. I think all of our listeners are going to find your peer to peer lending system very exciting and interesting and, of course, a new concept. Where do listeners go to look at the bid and ask on the interest rate spreads and what they can lend and borrow the money for?

GG: The easiest thing is you go to www.silverbullion.com.sg. It is just like the metals silverbullion.com.sg and you click on loans from the homepage. It is quite easy to see. From there you will be able to see past transactions. You are able to see the current bid, the current ask, and so on. You are even able to look at the collateral. You do not need to make an account. It is all there public for them to see.

CK: Great! Gregor, thank you so much for coming on the program and looking forward to having you back on in a short time frame.

GG: Thank you Collin.

Gregor Gregerson is the founder and owner of Silver Bullion SG and Safe House Depository, a premium bullion dealer and storage facility in Singapore. Gregor has a background in finance and software development.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.