That's a maxim often heard in the precious metals industry, where many would-be purchasers have learned the hard way that buying metals "on paper" is a dangerous game. The practice involves a holding company buying the metals on the purchaser's behalf, and storing it. The only proof the purchaser has that they own it is a certificate issued by that company.
The biggest fraud of its kind yet uncovered proves yet again the unwisdom of that approach.
A US court has ordered two precious metals companies to pay almost $146m (£115m) after more than 500,000 American Silver Eagle coins went missing.
The firms and their owner Robert Higgins have been accused of running a "fraudulent and deceptive scheme".
They had allegedly promised to store the coins for customers.
However, when investigators entered vaults that were meant to hold the coins, they were nowhere to be found.
Under the court settlement, precious metals dealer Argent Asset Group and First State Depository Company, which were both owned by Mr Higgins, were ordered to make restitutions of $112.7m and pay a penalty of $33m.
. . .
The regulator said that over 500,000 American Silver Eagle coins and more than 9,000 gold coins were missing from customers' accounts.
In their place, investigators said that they found "'IOU' slips in empty boxes marked to indicate a customer's account, yet containing no assets."
There's more at the link.
Yep. Gold and silver "certificates" may be worth no more than the paper on which they're printed. That's the risk you run when you don't buy and hold the physical metal itself.
Furthermore, such certificates - even if legitimate - make it very easy to confiscate or restrict access to precious metals, leaving their owners in the lurch. What happens if a future US president decides to "do a Roosevelt" and confiscate US private gold holdings? If you have physical metal in your possession, you have options. If it's in a central vault somewhere, it's child's play for the government to order the vault owner to prevent withdrawals, and if necessary station guards there to prevent it.
I don't trust, and I shall never trust, anyone else to hold such assets on my behalf. I recommend the same to my readers.
Peter
Hmmm. IOUs left behind -- does that sound like U.S. government policy to anyone? Let's have a video today of Fort Knox -- are there stacks of gold bars still there?
ReplyDeleteNo that is why the petro dollar exists
DeleteI use APMEX.com, and have had zero problems.
ReplyDeleteI will also point out that, if you're stockpiling precious metals for the aftermath of an apocalypse scenario, "gold will not always get you good soldiers, but good soldiers will always get you gold."
ReplyDeleteMake sure you're investing in brass and lead.
Even IF there were any gold bars IN Ft Knox what's the paper trail on them?
ReplyDeleteThere's a financial term Hypothecation.
Hypothecation occurs when an asset is pledged as collateral to secure a loan. The owner of the asset does not give up title, possession, or ownership rights, such as income generated by the asset.
Hypothecation occurs most commonly in mortgage lending, where the home serves as collateral but the bank does not have any claim on cash flows or income generated from it unless the borrower defaults.
Margin lending in brokerage accounts is another common form of hypothecation found in securities trading and investing.
SO, even they COULD SHOW you gold bars (HOPEFULLY Not gold-plated tungsten) IN Ft Knox OR the vaults of the Bank of New York, Bank of London etc. IS it already Hypothecated for one of many loans?
I can easily SEE a US Government AGAIN outlawing Private Gold AKA Roosvelt EO in order to FORCE people into USING FED COIN as the ONLY "Currency" of the USA.
As I was discussing with a friend, 2K for a ounce of gold or 1,000 cans of 2-dollar soup kept cool and dry? (Gosh I am eating soup that was a buck a can, inflation indeed)
Or variants of that. Will my can of soup trade on the day of hunger for a gram of gold or better?
Time will tell. PM's are a store of value BUT require rule of law to exchange for real goods.
I strongly suspect that the bars there are gold plated. Years ago (10, 15?), the guards were all fired on a Friday, and new ones installed on Monday. Many closed trucks were observed by locals, going in and out of the Fort that weekend.
ReplyDeleteThere are also military stocks of morphine held there.
John in Indy
Indeed, the primary utility of holding PM's is when society and government goes Tango Uniform. The likelihood of being able to retrieve those assets when held remotely by a third party (even if they are on the up and up) seems remote.
ReplyDeleteI had a silver IRA with a company in the past. It consisted of several hundred silver eagles, all documented. At some point, stories like this got me to simply pay the tax penalty and take them all into my possession. Yeah, a big penalty to the government scum, but they are now in MY POSSESSION and all taxes are now paid in full. I sleep better knowing that all my PMs are in my physical sphere of control.
ReplyDeleteI think I read somewhere very recently about the best practice of not laying up earthly treasures or something like that. Hopefully these lost coins were just that and not life savings for retirement or other legitimate holdings. I agree with you, Peter, that the bird in the hand adage applies greatly.
ReplyDeleteCan you imagine your local gun shop giving you a certificate worth 1,000 rounds of 45 ACP JHP and saying they'd keep your ammo in case you needed it? No one, not one single person, would say "sounds reasonable to me".
ReplyDeleteProblem is that's not what you are being told. Much like investing in the stock market (I do not have $1,000 worth of manufacturing capacity in my house, I have a certificate saying that I own $1,000 worth of company stock), investing in gold and silver certificates is supposed to allow you to take advantage of the fact that you can only invest in an ounce of gold if you have $1,919 right now, versus sending in $100 a month and having the company manage your resources. I understand the point, but those companies aren't selling you gold, they are selling you an investment based on gold. No different, however, than giving your local gunshop $10 a month and over time building up an investment in ammunition.
The problem here is not necessarily the mode of investment, it's the dishonesty of the company selling you those investments.
I have a vague recollection of an article I read many years ago questioning just how much physical gold exists in these "warehouse" operations. I don't remember who chased this down, or the companies involved.
ReplyDeleteStripped to basics: A guy wanted to see "his" physical gold. The company showed him not gold, but warehouse receipts from another outfit, with the explanation that it's more cost effective to let it bulk store it for them. They go to the second company and... you got it: warehouse receipts from a third, allegedly bigger company. Third company had warehouse receipts from multiple other companies, with the explanation that it was "safer" to distribute their gold into multiple baskets.
One of the multiple safety baskets was the FIRST company. You know, the one with no gold, just paper. Some companies held minor quantities of physical gold just for show; the rest was circular receipts.
As near as anyone could tell, most of the gold reserves were actually paper. And it seemed to be legal.
I was never a fan of the idea of "buying" gold that someone else held, but that caused to to swear to never fall into that trap.
There are two problems with precious metals in a world where trust is in short supply:
ReplyDelete1) If you don't take possession, is there a seller you can trust?
2) If you do take possession, will there be a buyer who will trust you?
Since when does the CFTC have any regulatory authority over what appears to be british (domiciled?) Companies.
ReplyDeleteThe CFTC is (last I checked) a DSRO (designated self regulatory organization) emphasis on 'self'. They only have jurisdiction over their member firms. File a complaint about a non-member firm and they will not even look at it as they have no authority to do so. This looks like false media help to continue the old 'cash forward' you pay the money we hold the gold scheme. MONEX was the only company that was regulated (CFTC) member) to do cash forward contracts and only because they were so big at the inception of the DSRO that they were grandfathered in. No new players allowed. Which does not seem fair & therein lies the con. MONEX (so they say ) has exclusivity and abuses it through high fees. 'Our' fees are lower & more competitive (because we don't care about the fees. We are going to keep the whole pot!).
The con artists think clever to say among themselves that they "stimulate the greed glands which are on either side of the neck causing neck to swell and restrict blood supply to the brain. Thus rendering the hapless 'investor' unable to do anything but sign the check". Real funny huh?
"There's a sucker born every minute." - P.T. Barnum
ReplyDelete"No one ever went broke underestimating the intelligence of the American public." - H. L. Mencken
Don't trust anyone nowadays. We have completed the transition from a high trust society to a low trust society.
ReplyDeleteThis is the shortest, simplest & most significant post/observation I have read to date. Of all things that have the greatest potential to cause the wheels of society and the wheels of the economy to come to a grinding halt Lynn's observation poses the greatest risk. Well done Lynn! Though your post is concise it begs lengthy and vigorous examination.
Delete"Hmmm. IOUs left behind -- does that sound like U.S. government policy to anyone? Let's have a video today of Fort Knox -- are there stacks of gold bars still there?"
ReplyDeleteRead "The Mandibles: A Family, 2029-2047" by Lionel Shriver.
https://www.amazon.com/Mandibles-Family-2029-2047-Lionel-Shriver/dp/006232828X/
When the USA Dollar fails in 2029, they will be searching door to door for our privately owned gold to pay off foreign owners of tbills. I have two gold molars, I hope that I get to keep them.
The projected cost of food in 2029 will knock your socks off.
Look for the story about Germany's gold. The US was holding their gold since WW2. Held in the NYCity depository. They decided that they should move it to German territory, finally. When they went to move it, it turned out to no longer exist. Seems the bank sold it somewheres along the way, and converted it to paper IOU's. Not sure who ended up paying for this screwup, but most likely the US taxpayer, as the story quickly disappeared from the media.
ReplyDeleteFt Knox is most likely empty, since Nixon's day. No government official, since then, has been allowed to view the gold stock that is supposedly held there, yet the NY city depository can be visited. Odd, that.
ReplyDeleteBuy it for cash over the counter.
ReplyDeleteI cannot believe the number of people I know who "own" gold, stored by a company.
Somewhere.
Same as ordering it online with a credit card.
Very traceable.
It's more of a challenge to buy local for cash, but mo' betta in my opinion.
I bought silver, but not as an 'investment'. It's my SHTF medium of exchange for goods I may need in the near future.
ReplyDeleteGo to an Indian (dot) jewelry store in one of the larger cities. Buy basic 22K chain necklaces/bracelets.
ReplyDeleteBrush up on your conversion math of grams to ounces so you can calculate out the price.
I did that.
After the first visit I whipped out a palm sized calculator to do the conversion. Guy behind the counter threw a look to older woman (mother?) on the other side of store and gave the eyebrow uplift and cracked a faint smile. She gave a nod in return
They knew I was for real. Respectful & helpful.
Haggling is a critical survival skill.
My mother recounted as a girl shopping with her Eastern European mother in what was called "Jew Town". The shops & merchants we're bunched up by their trade.
Furriers to mend and replace cuffs/ lapels & entire fur coats. I'm not talking mink or chinchilla but long wearing functional wolf, bear and racoon....middle & even working class wore back then.
They also took the goose down comforters and mattresses to be opened, washed/dried and refilled. G-mom ALWAYS thought she came back with lighter weight mattresses.
And of course shoe repair and button peddlers with myriad of buttons to choose from. A cacophony of various languages and pidgin English for the most recent immigrants.
I imagine it was like some Bruegel painting of town in the Middle Ages with street merchants & haggling.
I enjoyed reading this thread. If it's true that you can tell a person by the company they keep, I think you can certainly tell a blogger by the quality of comments. Thumbs up, Peter!
ReplyDeleteThe leaving IOUs in the boxes reminds me of a scene from "Dumb and Dumber"
ReplyDelete