Bullion Basics – Part Two
The Smart Money is Buying Bullion
Demand documentation that legally transfers title to specific physical bars, and do
not accept IOUs, paper proxies or derivatives.
Some Exempt Market Dealers (EMDs) and their high net
worth or accredited investor clients have woken up to the
realization that the era of high returns for stocks and bonds is
over. The key now is to own real money to preserve their wealth—
money in the form of physical gold and silver bullion. A recent
shift to a focus on bullion, allows EMDs to develop an additional
source of income by offering bullion products to their clients, on
a continuous basis, to balance out the uncertainty of the feast or
famine of some exempt market or traditional offerings.
The most significant consideration for any bullion
purchase is identifying one that offers the vault-solid attributes
of owning precious metals in physical form. There are many
investments masquerading as safe havens these days, but
for EMDs to advise their clients effectively, it’s imperative that
EMDs can knowledgeably discern flawed from solid bullion
Proof of a major trend change towards bullion ownership
starts at the top of the wealth food chain, with central banks. In
the second quarter of this past year banks bought 157.5 tonnes of
gold—up 137% compared to a year ago. The World Gold Council
says that is the most gold purchased since the Council began
tracking central bank buying in 2009.
China alone increased its gold bullion buying through Hong
Kong six-fold in the first two quarters of 2012, and indicated it
would retain all of the country’s gold production.
Along with the central banks, billionaire financiers like hedge
fund manager Kyle Bass, Greenlight Capital’s David Einhorn
and Third Point LLC’s Daniel Loeb are all on record as favouring
ownership of actual physical gold bullion bars – in allocated
storage in a secure vault. John Paulson told his clients at Paulson
& Co. in February that gold is his best long-term bet, serving as
protection against currency debasement, rising inflation and a
possible breakup of the euro.
While high net worth clients are searching for wealth preservation
in equities and bond markets that have become increasingly risky
and offer poor performance, it’s imperative to understand what does
and does not constitute a safe-haven bullion investment.
As bullion’s popularity rises, there will be more schemes,
frauds and leveraged investment products designed to part
investors from what could be their real money. At the core of all
of those schemes, often buried in the fine print, will be a paper or
non-existent bullion ownership structure.
As reported by the economic news website ZeroHedge,
financial services giant Morgan Stanley paid out $4.4 million
in June 2007 to settle a class action lawsuit brought by clients
after the firm charged them to “buy and store” precious metals,
but in fact their investment did neither. Similarly, a class action
lawsuit filed in New York’s federal court accuses UBS Financial
Services of misleading silver investors, and charging them
storage fees for metals that were never purchased, let alone
allocated or stored for them.
For any bullion product, be it a fund, or bullion itself, it’s
crucial to ensure that the documentation legally transfers title to
specific physical bars, and to not accept IOUs, paper proxies or
derivatives. As a recent SEC Investor Bulletin on ETFs states:
“Do not invest in something that you do
not understand. If you cannot explain the
investment opportunity in a few words and
in an understandable way, you may need to
reconsider the potential investment.”
The important thing for EMDs to note is that every fiat
currency regime in the financial history of the world, with no
exceptions, has led to currency collapse. Bullion is the best, hard
currency hedge, against that devaluation.
This time in the markets is not different, and uncompromised
bullion ownership has served as an effective mechanism for
wealth preservation over the world’s entire financial history,
with no exceptions. EMDs should investigate physical bullion
purchase options now so they can help to protect their clients at
a time when they are seeking safe havens in an unstable world.
For more information contact:
By Mark MacDonald, EMDA Director,Vice-President of Shareholder Relations, Bullion Management Group Inc.
MARKET INSIGHTS - PRECIOUS METALS