Minyan Mailbag - Pooled Accounts
Note: Our goal in Minyanville is to remove intimidation from the financial markets and encourage an interactive dialogue among the Minyanship. We share this next discussion with that very intent.
I was wondering if you have an opinion of kitco.com for buying silver and gold bars and more specifically what you think of "pooled" accounts to avoid delivery and storage costs? Could you actually send them $500k and feel safe?
Minyan Ted Cirillo
First and foremost, as you appreciate, I don't and won't give advice on anything to do with other people's money. People can lose enough money on their own without listening to the likes of people like me. But what I do with my own rapidly shrinking little pile of money and the reasons behind such decisions, I am happy to share.
I have never required the professional services of the company that you mention and have no opinion as to its business practices. They do provide good gold information for those wanting quick price reference amongst other notable features at their website of which I find a valuable resource. I do however have a few thoughts on pooled accounts in general. They suck. Just my opinion as usual.
Pooled accounts are just a claim of ownership over some silver that (hopefully) is in someone else's possession, in my opinion. When I own something, I want to see and feel it whenever I want. Who really owns the silver in the pool? In what bar form at what storage facility, bar numbers audited by whom? How much do you know about who has custody? Can you "collect" the silver from the pool whenever you want? It is the same issue for "allocated" versus "unallocated" gold at, say the Perth Mint. I would want "allocated" metal EVERY time. Paper claims versus silver bars is a no brainer for my money. I dunno enough about the intricacies or the fine print of this pool as it has no appeal to me. I don't generally explore ideas that insult my idea of, "ownership". I better go and find out some more though, as it pi$$es me off when I don't know enough about something in my little world. I wouldn't give anyone $500k these days without getting something tangible for it. An IOU doesn't cut it for me, sorry.
I know that $500k is a lot of silver, but it doesn't run away overnight and it is so easy to put to practical use and simple to camouflage. It gets dirty real easy and garden ornaments that weigh 500 pounds generally don't go walkabout. It makes a great barbeque hotplate. But it means you keep your mouth shut at the pub about how fast your steaks cook. Have you ever played Bocce or Boule? Those balls made of silver are very cool. A solid 24carat gold sphere always works well as the "Jack". Now there's a great gift for next Christmas!
I believe that everyone who has claim over an ounce of silver in the future via futures and derivatives and "pools," and everyone who is owed silver some time in the future because of leasing as well as the usual buyers from industry, jewelry and those oddball investors like me, add up to DEMAND. Demand for silver has outstripped supply for decades but the price hasn't gone up.
Total mine production, photographic recovery and scrap all added up is falling at current prices. The shortfall has been supplied from above ground stockpile depletion. These no longer exist. Supply is being outstripped by demand every year and there is no "safety valve" of a strategic stockpile.
The price has been artificially depressed through the use of Government stockpiles over the past 30 or so years. More recently, the use of paper silver is significantly affecting the physical price. I still suspect that there will be a delivery problem at Comex in the coming years, as too many people with no interest in or knowledge of the physical metal itself, are writing tickets that their bodies can't cash! Someone will ring the bell one day and someone is gonna have to produce a stack of silver that they just don't have or can't get. Who has the problem now? The pool accounts, the derivatives players and all sorts of people but certainly NOT the person who owns and has in their possession the physical metal.
If everyone with a paper claim on silver wanted delivery in the same quarter, there just ain't enough to go round and the price would go berserk. There are people out there trading multi-million ounce precious metals positions who wouldn't know a silver goblet from a stainless steel bed-pan. Hmmm.
Any "storage costs" for silver are silly, IMO. Store your own.
Half seriously - in the USA especially, the cost of a Heckler and Koch USP plus a thousand rounds is way cheaper than the 2% or whatever per annum bullion storage fee's charged by some places that can be as easily penetrated, if not more easily, than where you can store your own! Some simple security details must be addressed but quite frankly unless we're talking in 8 figures (in which case I'd just increase the level of defense and supporting weaponry), I would just store my own.
The rules can change very quickly, as evidenced by the extraordinary 1933 Gold Confiscation Act that effectively made it illegal for U.S. citizens to own gold - by Executive Order. Now I'm not saying that there's gonna be anything like that happening again anytime soon, but I am saying that if you own precious metals, then OWN them. Store your metal somewhere safe but certainly not in someone else's control.
Just my humble opinion.
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