07/15/09 - Doug Casey on the Nuts & Bolts of Handling Bullion
Doug Casey on Nuts & Bolts: Handling Bullion
L: Doug, we get a lot of questions about how to handle significant amounts of bullion. So let’s talk about physical gold, and what to do with the stuff. First off, do you really think that people should put as much as one-third of their asset portfolios into physical gold?
Doug: Yes, I do, and at considerable risk of repeating myself, I’ll tell you why:
With today’s markets suffering from volatility and disruptions of truly historic proportions, that sort of solidity is worth a lot – as you can see from gold’s continuing strength. The dollar is in huge trouble and is on its way to reaching its intrinsic value, which is very bullish for gold.
Second, gold is natural money. It’s uniquely well suited for use as money. Aristotle explained why, over 2,000 years ago, but in brief, it’s because it’s convenient, consistent, durable, divisible, and has intrinsic value (or, in Austrian economic terms, it has high intersubjective value).
So, if things get really bad and push comes to shove, you’ll always find someone willing to take your gold in exchange for things you need. Come hell or high water – actually, especially in cases of unleashed hell and high water – your bullion will still be an acceptable form of payment… long after people stop bothering to pick up paper money blowing along the cracked streets of dying cities.
Third, gold offers excellent speculative upside at this time, precisely because the markets are so turbulent, with relatively little downside risk – again for the same reason; the fear factor will keep gold prices strong for the foreseeable future and could drive them to the moon with little notice. That’s not a ride you want to miss.
L: What about people for whom one-third of their portfolio constitutes a substantial sum – much more than you can stuff under a mattress? Do you use Perth Mint Certificates?
Doug: You’re right. Carrying a significant amount of value in gold coins is bulky – and forget about silver, which gets extremely bulky for larger dollar amounts. That’s an important consideration given how critical it is to diversify your assets internationally, so you’re not totally controlled by your own government.
It’s still legal to carry gold coins across borders. Gold isn’t currently considered a “monetary instrument,” so you can still arguably carry, say, 100 Krugerrands (worth about $100,000) across a border legally, even though you’re supposed to declare “monetary instruments” in excess of $10,000 in most places these days. But a large amount of gold could get you referred to a TSA supervisor, and I’d rather see a dentist who doesn’t believe in anesthesia than that. The rules and their interpretation are quite Kafkaesque. Although I promise that none of the TSA’s 50,000 employees will have ever heard of Kafka.
Vehicles like the Perth Mint Certificate are excellent choices for securing larger amounts of gold. They basically boil down to outsourcing your storage and security needs to a highly respected and secure vault, and in the case of PMCs, they are backed by the government of Western Australia. You own the gold, not just a paper or electronic promise representing gold, and can take delivery via FedEx any time you want. And the certificates are transferable, so there’s some liquidity to owning gold in this way, without having to take delivery. (Click here for more information on the PMC programs’ with our friend’s at Kitco or Asset Strategies.)
But that’s for after you’ve set yourself up with all the physical gold you want in your possession. Because as good as PMCs are, it’s still only a piece of paper you have in your actual physical possession. It’s only one step removed from physical gold, but a step removed, just the same.
If you are worth many millions, it’s obviously problematic to go around with several million in gold bullion on you, but you should have at least a few hundred thousand dollars of gold in your personal possession. The rest can be held in things like PMCs or GoldMoney.com, another good alternative. GoldMoney.com stores your gold in London and Zurich and allows you to transfer it electronically, which is quite convenient. I’ve known Jim Turk, who runs it, for many years and have a great deal of confidence in him. The last alternative is a safe deposit box in a foreign country.
Be careful with that, however. I was just in Switzerland last week, and they have gone from simply discouraging Americans to unilaterally closing accounts held by Americans (unless you also live in Switzerland and are a resident of the country). They’re sending checks to last known addresses, so you can’t have a dormant account anymore, like in the old days. And it’s even worse; if you’re an American with a safe deposit box in Switzerland, watch out, because they are closing those as well. If they can’t find you, some of the banks are opening the boxes and removing the contents. They set the stuff aside somewhere, not in a safe deposit box anymore.
L: What – they just dump the stuff in a cardboard box and shove it into a corner of the basement until you come and get it?
Doug: Well, not cardboard, but it’s serious. You can’t have a safe deposit box in Switzerland anymore, certainly not with a major bank (though there are private companies in Switzerland that still offer the service). And it’ll happen in other countries too.
