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« Revisiting Our Proposal for an Overnight Gold Fund | Main | Who Really Owns Your Gold Stocks? »
Friday
Jan132012

GOLDMONEY: Physical Gold or Paper Gold?

There are three elements to way we have conducted business during this bull market for precious metals. The first step is to own physical gold and silver. The second step is to acquire a small number of quality gold and silver producers. The third step has been the utilization of the options market in precious metals.

Now, a number of our readers have acquired ownership of both gold and silver and actually have it in their very hands, which is something that we most definitely agree with. However, there a number of institutions and funds that provide this service for retail investors and acquire the metal on the retailers behalf. The retailer provides the funds and in return is issued with a certificate of ownership. This is where we have a problem, in that the retail investor has acquired a piece of paper and has not taken possession of the physical metal and so remains exposed to the risk of holding paper in much the same way as he would if he held a share certificate.

One such organization is Goldmoney which is managed by James Turk for whom we have great respect. There are many other organizations out there which are also household names, however, as Goldmoney appears to a popular one we decided to contact them regarding our concerns about holding certificates and not physical gold. We start with this excerpt from their web site which is then followed by a question and answer exchange as we discuss the issues.

Goldmoney: Complete ownership of the metal you buy

With GoldMoney you hold and own the allocated metal in your name, in contrast to ETFs and certificates. We always maintain a one-to-one ratio of metal in the vault and our database.

..................................................................................................

Good Day Team,

I understand that the gold under your management is stored in bank vaults in three different locations. Now, you may have a list of all the numbers of the gold bars that are allocated to Goldmoney, but how do know that those vary same numbers have not been issued to other investors, as well as your good selves. At the end of the day Goldmoney still only has a piece of paper promising a certain amount of gold, which is not the same as holding gold in a private vault outwith the fragile banking system.  

Have we missed something here or can you assure us that an investment placed with Goldmoney is indeed safe and not subject to vagaries of creative accounting in the banking sector, etc.

The first reply that we received didn't totally satisfy our curiosity so we followed up with the question below:

.............................................

Good Day Team,

Thank you for your quick response regarding storage of gold bullion.

We understand that Goldmoney utilizes the services of VIA MAT International and is therefore outwith the banking system.

However, we still have the same question and that is:

You may have a list of all the numbers of the gold bars that are allocated to Goldmoney, but how do know that those vary same numbers have not been issued to other investors, as well as your good selves. At the end of the day Goldmoney still only has a piece of paper promising a certain amount of gold, which is not the same as holding gold.

Can you ensure that this sort of duplication does not exist?  

Best wishes,

Bob Kirtley

www.gold-prices.biz

....................................................................................................................................

Dear Bob,

Allow me to answer your latest question. Basically let me repeat what my colleagues stated before:

"The one-to-one ratio is verified on a quarterly basis by three independent third party reports and audits:

Our vault operators, VIA MAT International and G4S, issue reports that show the number and weights of the gold, silver, platinum and palladium bars in each of the vaults;

Inspectorate, an independent third party company, counts all the bars and sample weighs them, thus verifying the accuracy of the vault reports;

One of the Big 4 accounting firms issues ISAE 3402 reports that confirm that the amount of metal in the vaults is equal to the metal recorded in our database, thereby ensuring the one-to-one ratio and our customer's ownership of the metal. Additionally, the auditor also reviews and reports on other important areas such as governance practices, order processing, operational procedures and IT security. We are pleased to note that there have been no exceptions reported by the auditor since we began reviews in 2006.

At the end of each month, we also post a monthly report on our website that states the total amount of precious metals and the value of our customers’ assets.

The ISAE 3402 reports are available to GoldMoney customers when they log into their verified Holding, while a complete archive of all other reports and certificates can be found at the following link:

http://www.goldmoney.com/certificates-and-reports.html

We believe we have put in place a sufficient number of third party checks to verify that GoldMoney holds 100% of customer metal recorded in our database in the form of physical bullion in our vaults at all times."

The metals themselves we source from refiners, not from VIA MAT or G4S.

 

Happy to discuss it in more detail in a call with you.

 

Let me know if you have any additional questions.

 

Kind regards,

 

….................................................................................................................

 

Good Day,

Thank you very much indeed for your explanation, its much appreciated.

However, if those storing the gold kept two sets of books you would have no way of knowing about it. As you never see my list of gold bars and I don't see the next guys list, then we cant know for certain that some duplication has not taken place, should someone ever decide to do so. 

Do we agree that the opportunity exists or not for accounting of the creative type?

If you think not, then please tell us why not.

Thanks once again for taking the time to answer our concerns, we do realise that's its a tricky one.

All the best,

Bob Kirtley

www.gold-prices.biz

…..........................................................................................................................

Hi Bob,

That's hardly likely, as our auditors would find out about it. Each quarter, Inspectorate counts all of the gold, platinum and palladium bars and a sample of the silver bars, and also weighs a selection of bars of each metal, to confirm the vault reports generated by VIA MAT and G4S are accurate.

Plus we invite Deloitte to review a wide variety of our controls and procedures on a quarterly basis. The results of their findings are published in their ISAE 3402 reports.

Of course, nothing is ever completely certain in life. But we've gone to great lengths to ensure we have the best government system in place which is underpinned by our decade plus existence and over 21,000 customers.

 

Best,

…......................................................

Good Day ,

Your words "That's hardly likely" is something we do agree with, however, its not impossible and that's the point that we trying to make. The auditors audit work with what they are given, they would not know of the existence of a second set of accounts, should an organization choose not to declare them.

Would it be fair to say that despite all your efforts and good intentions there still exists some third party risk, which is beyond your control and therefore renders Goldmoney not as safe as owning the physical metal itself.

Best wishes,

Bob Kirtley

www.gold-prices.biz

.................................

Dear Bob,

When you store metal yourself, there is the risk of theft, not able to insure it, not able to sell it easily etc.

We believe GoldMoney takes away the a.m. risks and is one of the best ways to buy and store physical gold and silver.

Personally I prefer storing some at home, and some with GoldMoney.

What you call third party risk, is what we call operational risk. And that's something one always has to keep in mind, but something we've absolutely tried to minimise as a result of all the control mechanisms and audits we've built in.

I appreciate your concerns, but at this point I don't think there's more to add from my side.

We hope you'll choose GoldMoney.

Cheers,

..........................................

Hi,

Please accept our thanks for the time you have taken to respond to our concerns, we really do appreciate it. However, our conclusion is that the retail investor holds a piece of paper issued by you and you hold a piece of paper issued by the storage company, which is not the same as holding gold in your very own hands. Its similar to buying stocks, whereby the broker issued a piece of paper and in turn the mining company issues a piece of paper. The same risks exist as we see it.

We do appreciate the ease of use and sales that your company provides for its customers and we understand why it is so popular.

Please feel free if you want the last word before we write this up.

All the best,

Bob Kirtley

www.gold-prices.biz

.........................................

Hi Bob,

Would you be able to show me your written review? Perhaps we can provide some last input before you publish it.

Much appreciated.

thanks,

..................................

Yes, will do.

...........................................

The last word reserved for Goldmoney as follows:

 

Goldmoney had no additional comments

.......................................................

In conclusion we sure that Goldmoney and other such organizations do everything in their powers to ensure that their procedures and auditing practices are the very best they can be. However, we remain of the opinion that physical gold and silver in your very own hands is the ultimate in ownership of the precious metals and that paper, in all its forms, carries with it third party risk. Its your hard earned cash and your responsibility to do the due diligence and be content in your own mind that you have done the right thing.

Regarding www.skoptionstrading.com. Our portfolio has now generated a profit of 399.82% since inception and we hope to keep it going that way in 2012.

Please be aware that discussions are taking place regarding an increase in the price for this service for new members, so if you are thinking about joining us, then do it sooner rather later in order to avoid this additional expense.

Our model portfolio is up 399.82% since inception

An annualized return of 93.60%

Average return per trade of 36.33%

94 completed trades, 86 closed at a profit

A success rate of 91.48%

Average trade open for 50.61days

So, the question is: Are you going to make the decision to join us today?

Also many thanks to those of you who have already joined us and for the very kind words  that you sent us regarding the service so far, we hope that we can continue to put a smile on your faces.

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Reader Comments (2)

You should run an article about Bullion Reserve of North America for your readers. As you may recall the owner committed suicide after loosing all of the investors physical metal, which he bet in the Futures Market.

January 17, 2012 | Unregistered CommenterGeorge

Not too many out there prepared to critique GoldMoney! Many operators refer to "allocated" as if it is some talisman that protects against counterparty (or operational) risk. There are actually a number of different storage "methods" all with slight differences that make a difference to the risk involved:

Segregated Allocated
Unsegregated Allocated
Unsegregated Physical Backed
Unallocated Fully Hedged
Unallocated Unhedged

See here for more detail http://goldchat.blogspot.com/2009/04/gold-and-silver-how-do-i-own-thee.html

January 17, 2012 | Unregistered CommenterBron Suchecki

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