A Mad Rush as Gold Bugs Get the Boot
By CAROLYN CUI
Fleets of armored trucks piled with gold bars and coins have been streaming out of midtown Manhattan in one unexpected consequence of the gold craze.
Amid gold's rise -- it has gained 32% this year and reached a record on Monday -- investors have been loading up on bullion and coins. One big problem now is where to store it. The solution from HSBC, owner of one of the biggest vaults in the U.S.: somewhere else.
HSBC has told retail clients to remove their small holdings from its fortress beneath its tower on New York City's Fifth Avenue. The bank has decided retail customers aren't profitable enough and is demanding those clients remove their gold to make room for more lucrative institutional customers.
An HSBC spokeswoman said the firm doesn't comment on its vault due to "security concerns."
HSBC's decision has created a logistical nightmare for both the investors and the security teams in charge of relocating the gold, silver and platinum to new vaults across the country. Many of those vaults are also feeling pressure from the surge in demand for space from clients that have stocked up on metal.
Investors have been loading up on gold this year amid worries about inflation and the stability of the U.S. dollar. The metal gained $17.90, or 1.6%, to $1164.30 an ounce on Monday. As gold has continued to set new records, other investors have flooded in. Many of them are taking possession of the metal, rather than just trading financial contracts linked to it.
Demand for physical gold, including bars and coins, is projected to rise 21% this year to 52.3 million troy ounces, the highest in history, according to CPM Group. Based on today's price, the total value would amount to about $61 billion.
The movement of gold from HSBC has created a stir not only among the bank's clients, but also among owners of warehouses and vaults around the country.
"I have never seen any relocation like this," says Jonathan Potts, managing director of FideliTrade, the parent company of the Delaware Depository Service Co., which has two warehouses in Wilmington. FideliTrade's two vaults have been filling up at an unprecedented pace, in part because it is taking in metal that has been ejected by HSBC.
Dealing with the fallout from HSBC's decision has become a full-time job for David Norris, executive vice president of GoldStar Trust Co., a Canyon, Texas-based retirement-account trustee, which organizes metal storage for its clients.
Mr. Norris says HSBC told GoldStar in July to immediately cease sending coins for storage. GoldStar, which had sent clients' holdings to HSBC for at least 15 years, is now figuring out how to get the coins out of the HSBC vault and down to the Delaware facility. "I can jump up and down and scream all day long about how much I don't like it. But it's their business decision," Mr. Norris says.
Moving the metal is like "a big military operation," he says. Precious metals are typically shipped by insured carrier services or armored trucking companies. Carriers sometimes ship the metals in plain boxes so as not to attract attention. Trucks are guarded by a team of two or three armed personnel.
Bradley Beyer, a GoldStar customer in Kewaunee, Wis., has 50 100-ounce silver bars stored with HSBC waiting to be moved. "My only concern is that the bars will be moved safely," he says.
HSBC is telling clients to either move their metal, or prepare for it to be delivered to their doorsteps. In a July letter, seen by The Wall Street Journal, HSBC said the precious metal "will be returned to the address of record... at your expense," unless instructed otherwise. HSBC recommended clients move their holdings to Brink's Global Services USA Inc., which has a vault in Brooklyn, N.Y. Brink's didn't return calls and emails seeking comments.
Like Mr. Beyer, many investors have recently added precious metals to their retirement accounts. At GoldStar, more than 1,000 new accounts are opened each month to purchase coins in retirement plans, compared to about 100 a month in 2006. Sales of American Eagle gold coins jumped 65% so far this year, according to the U.S. Mint.
"Many facilities are overloaded," says Bob Coleman, director of customer relations at Gold Silver Vault, a depository in Nampa, Idaho. Mr. Coleman says his vault has taken in several HSBC customers, contributing to the 500% growth in new metal coming in over the past quarter.
Vault and warehouse owners say retail customers tend to be more expensive in part because of their diverse holdings. They usually buy American Eagle or Canadian Maple Leaf coins, and bars of various weights and sizes, all of which need to be categorized and stored separately. In contrast, institutions typically buy standardized bars of 100 or 400 ounces, making them easier to store. Institutions also tend to hold the metal for long periods.
Precious-metal storage isn't as lucrative as it may sound. Many vaults are run on thin margins. The Delaware depository, one of the five major ones in the country, charges $6 each month for a 1,000-ounce silver bar and $12 for a 100-ounce gold bar.
HSBC's vaults contain $6 billion of large gold and silver bars, according to records held by Comex, the metals division of CME Group. There are no data for smaller coins and bars held by individuals.
First Eagle Funds, which runs a family of mutual funds, has 2.2 million ounces of gold stored at HSBC's vault, and hasn't been told to vacate the premises. Physical bullion represents "insurance and the safest asset out there," says Rachel Benepe, who runs the First Eagle Gold Fund.
Typically, a vault is protected with a 27-inch thick steel reinforced wall, surrounded with a "man-trap" -- a series of doors, each of which opens only after the previous door is locked, Mr. Coleman says.
Printed in The Wall Street Journal, page A1
Tuesday, November 24, 2009
Monday, June 1, 2009
Thinking of precious metal ETF's?
Thinking of precious metal ETF's?
Then you better think again...
Can't you see the yellow caution light that is flashing...
I would like to explain the difference between investing in the actual metal
versus precious metal ETFs. One should completely realize when buying a
precious metal ETF, it is simply a representation of the price in gold or
silver. Investing in precious metals entails buying the real metal directly
or through a program that offers the right to receive physical metal in
deliverable form upon liquidation with no conditions.
What is overlooked by most professionals?
One of the items that I read in the prospectus of the gold and silver ETFs
that concerns me relates to the reported expenses of the fund. I am a
professional expert in the storage and security of gold and silver. I run a
fully segregated and insured storage program that is independent of the
financial system. I also run a very unique physical gold and silver bullion
fund that takes delivery of all physical metal, as well as, stores and insures the metal outside the financial system in fully segregated and armored vaults. I am very knowledgeable with the cost of insuring and securing physical metal.
The expense ratios for many of the ETFs and other funds are very telling.
Many products want to have the lowest fee to attract today's cost conscious
investor. However, there is an old saying, "You get what you pay for". I
will take the SPDR Gold Shares "GLD" for example. They claim the custodian
charges .10 % or 10 basis point to properly safeguard the gold. A qualified
custodian must properly store the physical metal through the use of very
specific security controls such as cameras, sensors, armed guards, etc.
However just as important is the insurance which would protect the facility
and owner of the metal in the event of a breakdown in the security controls
of the vault.
What is fascinating is the unbelievably low cost the SPDR Gold Shares pays
for this security and insurance. Lets forget about the cost of simply
providing a secure facility to store the gold.
At these level of assets, there is only one company in the world that
insures physical precious metals in armored vaults. I have been told there
is no way this insurance company would charge a meager 10 basis points
annually for an "all risk" policy. That is equivalent to insuring a car
worth $10,000 and its driver for ten dollars a year. No insurance company
could ever make enough money to cover the risk of loss on that policy except
maybe AIG. Even some of the largest custodians for valuable assets pay a
minimum of 15 to 25 basis points just for an "all risk" insurance policy.
Personally, I question any program that stores their metal at a financial
institution. In many cases, the financial institution is internally insuring
much of the gold it stores. The problem with that is, if the institution
runs into financial trouble the owner of the metal has no protection against
the loss or damage to the items being stored. And isn't the idea of owning
gold and silver a hedge against a failure in the financial system?
That is why our programs store everything outside the financial system in
independently insured vaults.
Bob Coleman
www.goldsilvervault.com
Then you better think again...
Can't you see the yellow caution light that is flashing...
I would like to explain the difference between investing in the actual metal
versus precious metal ETFs. One should completely realize when buying a
precious metal ETF, it is simply a representation of the price in gold or
silver. Investing in precious metals entails buying the real metal directly
or through a program that offers the right to receive physical metal in
deliverable form upon liquidation with no conditions.
What is overlooked by most professionals?
One of the items that I read in the prospectus of the gold and silver ETFs
that concerns me relates to the reported expenses of the fund. I am a
professional expert in the storage and security of gold and silver. I run a
fully segregated and insured storage program that is independent of the
financial system. I also run a very unique physical gold and silver bullion
fund that takes delivery of all physical metal, as well as, stores and insures the metal outside the financial system in fully segregated and armored vaults. I am very knowledgeable with the cost of insuring and securing physical metal.
The expense ratios for many of the ETFs and other funds are very telling.
Many products want to have the lowest fee to attract today's cost conscious
investor. However, there is an old saying, "You get what you pay for". I
will take the SPDR Gold Shares "GLD" for example. They claim the custodian
charges .10 % or 10 basis point to properly safeguard the gold. A qualified
custodian must properly store the physical metal through the use of very
specific security controls such as cameras, sensors, armed guards, etc.
However just as important is the insurance which would protect the facility
and owner of the metal in the event of a breakdown in the security controls
of the vault.
What is fascinating is the unbelievably low cost the SPDR Gold Shares pays
for this security and insurance. Lets forget about the cost of simply
providing a secure facility to store the gold.
At these level of assets, there is only one company in the world that
insures physical precious metals in armored vaults. I have been told there
is no way this insurance company would charge a meager 10 basis points
annually for an "all risk" policy. That is equivalent to insuring a car
worth $10,000 and its driver for ten dollars a year. No insurance company
could ever make enough money to cover the risk of loss on that policy except
maybe AIG. Even some of the largest custodians for valuable assets pay a
minimum of 15 to 25 basis points just for an "all risk" insurance policy.
Personally, I question any program that stores their metal at a financial
institution. In many cases, the financial institution is internally insuring
much of the gold it stores. The problem with that is, if the institution
runs into financial trouble the owner of the metal has no protection against
the loss or damage to the items being stored. And isn't the idea of owning
gold and silver a hedge against a failure in the financial system?
That is why our programs store everything outside the financial system in
independently insured vaults.
Bob Coleman
www.goldsilvervault.com
Wednesday, February 25, 2009
Worried Investors Want Gold on Hand
Printed in The Wall Street Journal, page A3
FEBRUARY 25, 2009 Worried Investors Want Gold on Hand By CAROLYN CUI and ALLEN SYKORA
Some investors are so worried about the prospect of economic
collapse that they are buying gold and having it delivered to them,
rather than holding the precious metal in the form of futures contracts
or other securities.
The global recession and worries about the stability of the
financial system have sent the price of gold to $1,000 an ounce. But
more surprising is that buyers are taking the unusual and expensive step
of taking possession of it.
"We're having some of our strongest months ever," said Scott Thomas,
president and chief executive of American Precious Metals Exchange, a
precious-metals dealer in Edmond, Okla. "The bottom line is our numbers
are probably double what they were last year, and last year was very
busy."
Bob Coleman, who runs a bullion fund out of Nampa, Idaho, has taken
multiple deliveries of gold and silver since last fall for his clients.
The fund, Dollars and Sense Growth Fund, primarily invests in precious
metals for high-net-worth individuals.
"It's more of a trust issue," says Mr. Coleman. "Given all the
turmoil in the market, people prefer to have access to the metal."
Sales of American Eagle gold bullion coins at the U.S. Mint in
Philadelphia more than doubled in the first two months of this year.
Investors are also flocking to gold coins. At the U.S. Mint, a total
of 147,500 ounces of American Eagle gold bullion coins were sold in the
first two months this year, a surge of 176% from the same period last
year.
Demand is rising at the Comex, the metals division of the New York
Mercantile Exchange, where investors increasingly are choosing to take
physical delivery of gold, rather than cash, once their futures contacts
expire.
Rising delivery orders have kept Brink's Inc., a major carrier for
the Comex, busy. The Richmond, Va., company said it saw a large spike in
clients shipping gold and silver from the exchange over the past few
months.
Tony Klancic, an account executive at Lind-Waldock, a Chicago
commodities brokerage, says he has been taking calls since September
from individual investors wanting to buy physical gold.
These are "real people in rural America with money under the
mattress, and wealthy individuals coming to the futures market strictly
intending to take delivery," Mr. Klancic said.
In December, 4.5% of gold contracts ended in delivery, compared with
3.4% a year earlier, according to the exchange. Investors also are
taking delivery of silver, with contracts ending in delivery rising to
7.3% from 4.7%. December is typically a big month for deliveries, and in
January, deliveries remained higher than the year before.
Jewelers and other users of metals are among the buyers who take
possession of gold and silver. But with sales of jewelry down and other
industrial users cutting back, it appears that investors are causing the
increase.
Gold deliveries peaked at more than 8% in the early 1980s, when
Mexico defaulted on its foreign debt and the world economy was in
recession. Deliveries dropped and have gradually fallen back to the
range of 2% in recent years.
Gold pierced the $1,000 level last Friday, the first time since
March 2008. On Tuesday, the February contract closed at $969.10 per troy
ounce. So far this year, the precious metal is up 9.7%.
Taking physical delivery of gold can be costly and complicated.
Investors typically buy gold on exchanges using futures contracts. Since
each contract represents 100 ounces of gold, an investor would have to
pay $96,910 per contract, based on Tuesday's close, in order to take
delivery. By contrast, investors need to put down only $3,999 up front
to trade such a futures contract.
"It is an expensive proposition," says Jeff Christian, managing
director at CPM Group, a New York precious-metal research firm.
Also, the logistics of buying a big lump of metal might be daunting
for smaller players. Investors who decide to take delivery of gold
contracts face high storage and insurance costs. And if buyers actually
want the gold or other precious metals in their possession, they must
arrange for delivery by armored truck. In a recent delivery of 100,000
ounces of silver, Mr. Coleman paid $3,000 to transport the metal from
New York to Idaho.
Write to Carolyn Cui at carolyn.cui@wsj.com
Printed in The Wall Street Journal, page A3
---------------------------------
Carolyn Cui Money & Investing The Wall Street Journal. Work: 212-416-3078 Mobile: 646-593-1152 Email: carolyn.cui@wsj.com
FEBRUARY 25, 2009 Worried Investors Want Gold on Hand By CAROLYN CUI and ALLEN SYKORA
Some investors are so worried about the prospect of economic
collapse that they are buying gold and having it delivered to them,
rather than holding the precious metal in the form of futures contracts
or other securities.
The global recession and worries about the stability of the
financial system have sent the price of gold to $1,000 an ounce. But
more surprising is that buyers are taking the unusual and expensive step
of taking possession of it.
"We're having some of our strongest months ever," said Scott Thomas,
president and chief executive of American Precious Metals Exchange, a
precious-metals dealer in Edmond, Okla. "The bottom line is our numbers
are probably double what they were last year, and last year was very
busy."
Bob Coleman, who runs a bullion fund out of Nampa, Idaho, has taken
multiple deliveries of gold and silver since last fall for his clients.
The fund, Dollars and Sense Growth Fund, primarily invests in precious
metals for high-net-worth individuals.
"It's more of a trust issue," says Mr. Coleman. "Given all the
turmoil in the market, people prefer to have access to the metal."
Sales of American Eagle gold bullion coins at the U.S. Mint in
Philadelphia more than doubled in the first two months of this year.
Investors are also flocking to gold coins. At the U.S. Mint, a total
of 147,500 ounces of American Eagle gold bullion coins were sold in the
first two months this year, a surge of 176% from the same period last
year.
Demand is rising at the Comex, the metals division of the New York
Mercantile Exchange, where investors increasingly are choosing to take
physical delivery of gold, rather than cash, once their futures contacts
expire.
Rising delivery orders have kept Brink's Inc., a major carrier for
the Comex, busy. The Richmond, Va., company said it saw a large spike in
clients shipping gold and silver from the exchange over the past few
months.
Tony Klancic, an account executive at Lind-Waldock, a Chicago
commodities brokerage, says he has been taking calls since September
from individual investors wanting to buy physical gold.
These are "real people in rural America with money under the
mattress, and wealthy individuals coming to the futures market strictly
intending to take delivery," Mr. Klancic said.
In December, 4.5% of gold contracts ended in delivery, compared with
3.4% a year earlier, according to the exchange. Investors also are
taking delivery of silver, with contracts ending in delivery rising to
7.3% from 4.7%. December is typically a big month for deliveries, and in
January, deliveries remained higher than the year before.
Jewelers and other users of metals are among the buyers who take
possession of gold and silver. But with sales of jewelry down and other
industrial users cutting back, it appears that investors are causing the
increase.
Gold deliveries peaked at more than 8% in the early 1980s, when
Mexico defaulted on its foreign debt and the world economy was in
recession. Deliveries dropped and have gradually fallen back to the
range of 2% in recent years.
Gold pierced the $1,000 level last Friday, the first time since
March 2008. On Tuesday, the February contract closed at $969.10 per troy
ounce. So far this year, the precious metal is up 9.7%.
Taking physical delivery of gold can be costly and complicated.
Investors typically buy gold on exchanges using futures contracts. Since
each contract represents 100 ounces of gold, an investor would have to
pay $96,910 per contract, based on Tuesday's close, in order to take
delivery. By contrast, investors need to put down only $3,999 up front
to trade such a futures contract.
"It is an expensive proposition," says Jeff Christian, managing
director at CPM Group, a New York precious-metal research firm.
Also, the logistics of buying a big lump of metal might be daunting
for smaller players. Investors who decide to take delivery of gold
contracts face high storage and insurance costs. And if buyers actually
want the gold or other precious metals in their possession, they must
arrange for delivery by armored truck. In a recent delivery of 100,000
ounces of silver, Mr. Coleman paid $3,000 to transport the metal from
New York to Idaho.
Write to Carolyn Cui at carolyn.cui@wsj.com
Printed in The Wall Street Journal, page A3
---------------------------------
Carolyn Cui Money & Investing The Wall Street Journal. Work: 212-416-3078 Mobile: 646-593-1152 Email: carolyn.cui@wsj.com
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