My recommendation is to purchase gold and purchase silver, but always hold it yourself in your possession to prevent certain pitfalls and sleep better at night. Read on...
The aim of this article is to clarify the differences between investment solutions offering direct ownership (allocated) and mutualized (non-allocated) ownership of physical gold. Dangers tied to the actual monetary context: Two of the most significant dangers for investors in this monetary crisis when investing in gold are:
- Counterparty risk: this really is the risk investors face when they hold their investment through an intermediary instead of directly. They're exposed to the risk of counterparty default.
- The risk of not truly holding physical gold and the impossibility of verifying its existence.
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As regards counterparty dangers, the failures of MF Global and Sentinel Asset Management are quite revealing: each corporation had been either selling gold certificates or gold stored in the banking method. But, in both cases, investors were not the full owners of their gold; their gold was held by MF Global and Sentinel Asset Management. In each case, investors didn't have access to their gold and couldn't verify it, or take delivery of it in a timely manner. They were therefore exposed to the risk of counterparty default and have fallen victims to those two companies. You will find differences at many levels:
1) How will the actual investment in gold be held?
- Mutualized, or un-allocated gold, consists of a part of a gold bar (usually 12.5 kg). The gold held isn't a finite quantity, like an ingot, but part of a bar.
- Direct, or allocated gold, provides full and total ownership of a bar, or of an ingot, based on the size of the investment. In other words, an investor may either own a part of a bar (mutualized gold) or a total allocated bar or ingot.
2) What ought to an investor select?
- By definition, mutualized gold is really a means to own gold alongside other investors (mutualization). The same bar is thus owned by many investors, every investor owning a part, not the whole bar.
- Direct ownership means an investor straight and totally owns a bar or ingot in complete name.
In one case, ownership is mutualized and, in the other, it's direct (in full name) 100% ownership.
3) Ownership and storage certificates
- In the case of mutualized gold, storage certificates are issued in the type of a list such as all of the clients' numbers and a list of numbered bars. It's issued by the storage partner, thus it's global and not personally assigned.
- In the case of direct ownership, a unique storage certificate is issued for each client by the storage partner. It's unique, issued for each client and it mentions precisely the client's first and last name as well as the bar(s)' serial numbers.
In one case, the storage certificate is worldwide and not personally assigned and, in the other, it's unique, individual, and it shows the precise identity of the client and the serial number(s) of the bar(s) he owns, which constitutes a complete name ownership certificate.
4) In which instances do storage partners know the identity of the clients?
All businesses providing mutualized or direct ownership have established partnerships with independent companies specialized in the secured storage of precious metals, usually outside the banking system:
- Mutualized, or un-allocated gold: the storage partner is only conscious of the investor's client number and of the serial number of the bar attached to that number. It does not directly recognize the identity of every client assigned to a number. And such companies offering mutualized gold ownership only have a single storage account in their name using the storage partner along with a multitude of sub-accounts for each of their customers. The investor/client doesn't have an open account with the storage partner, it is the issuer of the mutualized gold answer who stores gold in the name of its customers. LEARN MORE >>> http://www.silverdollar.cc for more profitable silver and gold tips.
- Direct ownership: the storage partner, as long as it problems itself a storage certificate using the exact identity of the client along with the bar's serial number, and/or a storage account is open directly in the client's name, knows precisely each client's identity and knows precisely to whom belongs every numbered bar. In this particular case, both the company offering direct ownership and its storage partner know the client's identity and the serial number of the bar(s) he owns.
In one case (direct ownership), the storage partner knows the client's exact identity (first and last names) and, in the other (mutualized gold), the storage partner has a list of clients' numbers, but does not know the identity of the clients other than through the business, and only manages a single worldwide account for stated business.
5) Verification, direct access to the secured warehouses and also the possibility of retrieving stored gold
These questions are tied to the previous one:
- Mutualized gold: It is usually more difficult, even impossible, to physically access one's gold. The mutualized gold providers' business model doesn't provide clients with simple access to their gold and withdrawing one's physical gold generally entails stiff exiting penalties.
- Direct ownership: Access to the storage warehouses is guaranteed. The storage partner knows the exact identity of the client and also the serial numbers of his bars since an individual storage account has been open in the client's name. The storage partner therefore has the legal obligation to authorize the client access to one's stock and, furthermore, with out the need of the selling entity's employee(s) to become present.
Taking physical possession of one's gold by the client is legally authorized (without any penalties), since the client is the owner of finite bars or ingots.
6) Cost differences
Owning mutualized gold is less pricey than complete direct ownership, which may be explained by additional costs inherent to owning gold straight in one's name. For instance, extra costs associated to the secured delivery of bars and ingots for every client, handling charges applied to not just a single 12.5 kg bar (mutualized gold), but to every gold stock delivered on the client's account to the secured warehouses, fees for storage account opening on the client's behalf by the storage partner, issuance of a individual storage certificate, and so on.
Each of these two solutions for owning gold outside the business banking system is meant for investors with different investing profiles. Each has its merits and different characteristics. Every investor must then make his own choice depending on his investing profile, i.e. trading, short or long term investor, on his risk evaluation, costs, degree of guarantee of ownership or the possibility of getting access to his gold and taking possession (from the warehouses). My recommendation is to purchase gold and purchase silver, but always hold it yourself in your possession to prevent certain pitfalls and sleep better at night. LEARN MORE >>> http://www.silverdollar.cc for more profitable silver and gold tips.