Owning Gold Is One Thing, Storing It Quite Another
By: Elizabeth Alterman|Special to CNBC.com
As eager investors enter the fray of this modern-day gold rush, an important question arises: Where and how should gold buyers store the precious metal?
“There are only two ways to buy physical gold,” says James Turk, founder of GoldMoney.com. “Buy it and store it yourself, or buy it and have someone store it for you, which is what GoldMoney does. Each alternative has advantages and disadvantages, so everyone needs to weigh these and decide which alternative—or maybe both—works best for their own individual needs.”
Louis Palafoutas, a gold bullion trader with Morgan Gold who has spent three decades in the gold industry, says while some buyers choose to keep gold in a safe in their homes, others ask to have accounts set up at Brink’s or Delaware Depository, where the Comexand the Internal Revenue Service keep their gold.
“It goes from one extreme to the other,” says Palafoutas. “Some want gold delivered to an account they control, like their IRA. Then you’ve got the other extreme: People who are anti-government, who want to have gold in the event of gloom and doom, and they want it in small units because they believe they’re going to be buying groceries and gasoline with it.”
Weighing The Options
There are really only three ways to store your gold—keep it at home, use a bank's safe deposit box or pay a third-party storage firm.
Mike Clark, president and general manager of Diamond State Depository, points out the danger of investors storing gold bullion on their own.
“If you lose it, it’s gone,” Clark says. “It’s not like your stock certificate where you can pay an administrative fee and have it replaced. If you lose your 10-ounce gold bar, it’s gone. You can insure them under certain circumstances. We ship precious metals to people who want to bury it in the backyard, literally, or store it in their garage in a hidden place. They feel good about it because it’s within reach, but it’s fraught with all kinds of problems.”
Turk says another problem with storing gold at home is the illiquidity factor.
“To make it liquid, you need to return your coins and bars to a dealer to sell them, which is a hassle,” Turk says. “What is worse, even before the dealer accepts them, you may even need to get your gold bars refined so the dealer can verify the gold content, which costs money and takes time.”
Storing gold bullion in a safe deposit box works for a lot of people, says Clark.
For one, they are inexpensive. Boxes (most are five inches wide and 24 inches long) start at around $50 dollars a year. Mid-size ones (5 inches high) are about $100. The largest (10 inches high and wide) run about $200.
A key consideration, however, is whether the metal is conducive to a quick resale.
For example, gold bullion coins, such as American Eagles, which are guaranteed by the federal government, have inherent liquidity because they are bought and sold by coin dealers, banks and commercial dealers without question, says Clark.
“The coins don’t need to have an assay, something that certifies the gold,” he explains. “If you buy Eagles they’re very liquid, they’re internationally recognized. If you store them in a safe deposit box, you can be sure if you go retrieve them someday and take them to a coin dealer they will buy them over the counter, without exception.”
However, the safe deposit box option is not without its flaws.
The obvious one is access. Bank hours are limited, as is your opportunity to get to it.
"If there’s a huge market move on Friday afternoon and you’re at work and you go, ‘Oh my God, gold just went up to $120 today,’ you can’t get to the bank before it closes," says Clark. "You may wait until Monday morning to get your coins out of the bank to get to a dealer to buy them. That all takes time and the market move, whether it’s for you or against you, may evaporate."
There's also the matter of insurance.
“The bank doesn’t insure the contents of a safe deposit box," says Clark. "If you want to feel really comfortable and secure, you have to buy separate insurance, which can be expensive, and it’s hard to get for precious metals in safe deposit boxes. You also have the security risk going to and from the bank."
Finally, size can be an issue. If an investor chooses to make a large investment in coins, the holding could be bulky, exceeding the capacity of the ordinary box.
Storing your gold at home also has practical considerations, says David Small, a New Jersey-based gold-bullion buyer.
“If you buy a safe, you should buy it with cash, and install it yourself as best you can,” says Small, noting the fewer people know you are buying gold and storing it on your property, the better.
“If you are buying it because you are skeptical of mainstream financial institutions, you want it in a place where if something does go wrong, the government can’t confiscate it like they did in 1933,” adds Small.
While he started out purchasing gold bullion in bar form, Small says more recently he has been purchasing American Eagles and Canadian Maple Leafs because he believes “they are more fungible.”
The final option for storing gold is using a private firm, known as a depository.
Small sees the wisdom of that for those investors with larger holdings, especially if they want to spread their holdings among several countries.
Using a depository has become increasingly popular, says Turk. Five years ago, his firm GoldMoney.com was safeguarding $137 million of metal owned by 4,600 customers. Today, the firm is responsible for $2 billion in gold, silver, platinumand palladium, belonging to more than 19,000 customers in 87 countries.
GoldMoney.com allows customers the option to store their gold in London, Zurich and/or Hong Kong.