Worldwide economic uncertainty has created a growing interest in precious metals as a means of preserving wealth. Unfortunately, most people don’t know how to purchase or store physical bullion, and as such may find themselves as vulnerable to financial collapse as those who don’t purchase any bullion at all.
There is a new generation of precious metals-based financial products based on paper proxies or derivatives of gold. Investors who want physical metals have to take more responsibility and do more research so they can better understand the nature of their gold investment and demand greater transparency. In other words, they must do their homework and understand what they are buying.
It is important to realize that a financial institution can sell an investor’s bullion if the prospectus says it can. Investors have to read the fine print, tedious though it may be. Precious metals ETFs, generally viewed as a low-cost panacea that replaces an investment strategy, may be providing investors with a false sense of security; questions are being raised as to whether they actually own any bullion or not.
A bullion investment should always meet two criteria: It should not be someone else’s liability, and it should not be someone else’s promise of performance. Purchasers must have documentation that transfers title of specific, physical bars; only then can they arrange for storage on an allocated, insured basis. Proper storage can be expensive, but home storage and private vault facilities have significant drawbacks. A bullion investment should be in Good Delivery bars, and stored in the vault of a London Bullion Market Association member.
Investors can protect their portfolios with physical bullion. Just as with any large asset purchase (a house or car), insist on documentation that confers legal title to the bullion in question. In a fire, you need a real fire extinguisher and not a picture of one. Similarly, in the case of a financial firestorm, you need real physical bullion, not a paper proxy.
To read Nick Barisheff article: Do You Really Own the Bullion?
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