[Last updated August 2014]
Nowadays many physical precious metal investors with more than just a few ounces keep their metals in some form of bailment service. The number and variety of these services has mushroomed in recent years, including some interesting online options.
If your portfolio is small or may never grow very large a Do it yourself approach to home storage and safe deposit box may be more appropriate. Take a look at our section on Storage costs for a price comparison of safe deposit boxes and bailment services.
Bailment describes a legal relationship in Anglo-American law where physical possession of personal property is transferred from one person (the ‘bailor’) to another person (the ‘bailee’) for safekeeping. The concept exists under most systems of law and is an ancient one that goes back to Roman times.
There are many variations on the idea. For example, pawning your Rolex is a type of bailment. The specific type of bailment we are interested in is where (a) your metals remain “allocated” in your name, and (b) are kept in an insured and bonded tax-free zone or in a precious metal friendly country with favourable rules around precious metals ownership. For physical precious metal investors there is an important distinction between “allocated” and “unallocated” bailment which we discuss below.
BullionVault, Euro Pacific, EverBank, Gold Republic, GoldMoney, and the Hard Asset Alliance have brought the concept of precious metal bailment into the Internet age. We discuss these as well as more traditional or full-service bailment services in this section.
Allocated or unallocated?
The type of bailment we recommend is where the metals remain in your title and are deliverable within a reasonable timeframe. Under no circumstances can the bailee use the metals while in their possession. In the event of business failure the bailee’s creditors have no legal claim against your metals.
Whether or not your specific coins and/or bars are allocated (and preferably segregated in a numbered box or vault) in your name goes to the heart of our concept of a physical precious metal investment. Simply put, if you don’t have legal title and the option of immediate or reasonably deliverable possession of specific coins or bars then, in our opinion, you don’t have a physical precious metal investment. Please see What is a physical precious investment? for more about our views on this subject.
The exceptions to our “allocated rule” are the online bailment companies discussed below. These are not allocated bailment in the strictest sense because clients have fractional ownership of large bars or pools of coins and bars. However the benefits of liquidity, low costs and convenience that they provide are such that they deserve consideration by investors.
Traditional full-service bailment
The following companies offer examples of services that match our concept of an “allocated” precious metal bailment service. Be aware that some also offer unallocated, certificate or deposit accounts as well. These are popular and may suit your investment needs, but as stated elsewhere we do not consider these types of account as physical precious metal investments.
All of these companies will offer bonded storage or be located in precious metal friendly jurisdictions so as to legally avoid customs duties and sales or value-added taxes on your metal purchases (see our section on Taxes). The actual storage facility will be located in a special tax-zone or location and/or secure area of a major transportation hub such as an airport or a shipping port.
All the companies listed below will have partnerships with or will be integrated precious metal dealers and/or specialist transportation providers themselves. Each will have its own account minimums and rules, fee structure and insurance policies.
Kitco’s Allocated Storage Program, Pert Mint Coin and Bar Depository, AmsterdamSafe, and Miles Franklin Precious Metal Storage are examples suited to smaller private investors. The others are suitable for high net worth individuals, family offices and managed funds. We stress that none are recommendations. There are other bailment service companies we haven’t listed and we ask you do your own due diligence.
Perth Mint (Australia)
BMG Bullion (Canada)
Amsterdam Safe (Netherlands)
IGB Asset Management (Panama)
Global Precious Metals (Singapore)
Global Gold (Switzerland)
Gold Switzerland (Switzerland)
Anglo Far East (Switzerland)
Gold Made Simple (UK)
BullionRock (Guernsey, UK Channel Islands)
Delaware Depository (USA, DE)
Miles Franklin Storage (USA, MN)
Diamond State Depository (USA, DE)
Bullion International (USA, NY)
GoldSilver (USA, CA)
In addition, while conferring no special tax advantages Baird & Co. (Goldline) offer allocated gold storage for customers in their secure London UK refinery.
There are several online bailment services that deserve mention. These occupy a grey area between traditional bailment and precious metal deposit accounts. Some offer specific bar or coin ownership. But if you opt for fractional ownership of large bars or pools of non-specific coins, like most users of these services do, then this doesn’t strictly match our definition of a physical precious metal investment. Nevertheless the benefits of liquidity, low cost, storage convenience, and ease-of-use make them worthy of consideration as a storage option.
EverBank, Euro Pacific, and Hard Asset Alliance allow clients to buy coins and bars as well as have fractional ownership of large bars. The ability to take delivery of metals is a built-in feature of these accounts. EverBank and Euro Pacific have convenient bank-like features such as debit cards. EverBank clients can set up a coin-oriented IRA.
Neither GoldMoney, BullionVault nor Gold Republic are purposely designed for account holders to take physical possession of coin or bar bullion. BullionVault leans more to a trading vehicle while GoldMoney and Gold Republic lean more toward a savings account. However all three do allow you to withdraw metals for collection or delivery. At a minimum, for gold, you’ll need sufficient metal to make up 100g bars and satisfy identification requirements. GoldMoney also allow silver withdrawals but only for 1kg bars. BullionVault have a lead time of “a few weeks” as they process orders in pre-ordered batches. Otherwise, these companies are primarily set up to settle withdrawals in fiat currency.
For more explanation of your right to withdraw your precious metals see GoldMoney’s customer agreement and BullionVault’s terms and conditions. Also see Gold Republic’s terms and conditions for similar.
With all these online bailment companies your metals co-mingle with that of other customers and in effect you have fractional ownership – although we note GoldMoney has recently offered specific bar registration for larger clients. They also have robust force majeure clauses in their fine print that suggest a greater level of risk compared to traditional allocated bailment or DIY storage.
The key for us though is that while ownership may be fractional all these companies maintain an exact one-to-one ratio between what clients own and what is actually in the vaults. This is sometimes called “pool allocated”. In other words, these are not fractional reserve accounts like at the mainstream banks, and there is no risk (in theory) of there being insufficient metal to return to clients. And also keep in mind these are bailment entities, so customers metals never appear on the company balance sheet.
The bottom line is that the practical benefits of these online services are substantial. See our section on Storage costs for a comparison. Also have a look at our Bailment premiums section to compare the attractive buy/sell premiums charged by online bailment providers.