Some of our single-digit millionaires are, purely by dint of statistics, gold bugs. Maybe you believe the global economy is coming a fiery end, and gold is the last bastion of civilisation. Or maybe you just like diversification, and being able to physically handle the gold is more satisfying than a gold ETF. In either case, you really should know about private vaults, and what they do for you.
First off, why a vault?
If you’re already an expert you can feel free to roll your eyes at this sort of question. But for the occasional newbie out there: you usually can’t insure your gold properly if you don’t’ have appropriate storage.
Insurers aren’t too eager to provide coverage if you tell them your gold coins are stuffed into a Milo tin in your sock drawer; they want to know you keep it somewhere sensible. In most cases, that either means sticking it in a bank deposit, or somewhere else with a functional (certified) vault.
Okay, but why a private vault rather than a bank vault?
I’m going to tell you a blunt truth, which I’m sure most gold bugs are happy to admit anyway: people who are big into gold generally don’t trust government regulations.
Just like most don’t’ trust central banks and fiat currencies, most also don’t trust that governments will leave their bank alone.
If the country’s authorities issue an edict confiscating your bank deposit tomorrow, you can bet the branch manager is not going to give her life defending your retirement from an armed asset-seizure team.
For this reason, some gold bugs prefer a trusted, privately-run vault. Some may pick one that’s overseas, whilst some may be okay with a locally-run company. And yes, there is such an option in Singapore, though I can’t mention any company names here.
Another possible function of private vaults is to act as a guarantor
One of the main issues with gold and precious metals is finding ways to monetise them. Hopefully they’ll appreciate, but in the meantime they’re just sitting there in a vault, costing you storage and insurance fees.
This is also where a private vault can come in:
Say you have about $1 million worth of gold held in a private vault. You could then find a lender to borrow from, using the gold as collateral. E.g., a loan of $500,000, with the guarantee that – if you fail to pay them back – the private vault will sell off your gold to cover the remainder of your debt.
This does entail legal paperwork, so you may want to talk to a lawyer first. You also do need to do handle the legwork yourself, such as finding a willing lender, and negotiating an interest rate. It’s rare for private vaults to get any more involved than beyond being you guarantor, and holding your gold.
Note that this service is not unique to private vaults, and most banks can do something similar. If you’re not fussy about a normal bank handling your gold, you could compare the service fees and pick the most cost-effective.
That said, there are some drawbacks to look out for
Large private vaults are expensive to run. It’s not just renting a building to put a big metal box in; private vaults also need to hire security guards, administrative staff, and (depending on the size of the company) possibly even experts to test the authenticity of gold, silver, etc.
It’s possible that putting your gold in a private vault could end up costing much more than just leaving it in a bank deposit box. If so, you need to ask if you distrust banks or your government so much, you’re willing to pay a premium for private storage.
Another concern is the level of vault that’s being offered. This is a matter for your insurer: if they require your gold to be in a level III vault to be covered, and the private vault is a level II, then you need to find another option.
However, some of the largest and most established private vaults can offer full insurance on your deposits, as they have their own deals with existing insurers.
With overseas private vaults, there’s an added legal dimension. If something does go wrong at the vault (e.g., a long delay in getting your physical gold for sale, by which point market conditions mean a price drop), you may want to take legal action.
If that legal action is right here in Singapore, you may have a good grasp of the situation. But if the private vault is in another country, and subject to different legal codes, you could have a much harder time with your lawsuit.
The final, and biggest, concern is just the trustworthiness of the private vault and its management. Ultimately, you need to keep in mind your assets are in the hands of someone else.
You can swing by the vault and check on your assets (usually with advance notice). But if the owners of the vault ever decide to abscond with everything, well, your gold is sitting right there for them to take.
Some gold owners may also be concerned over the risk of counterfeit gold; such as the possibility of the vault owners replacing your gold with fakes.
Consult with an expert on how to insure your precious metals
Before you make decisions like whether to store your gold in a bank, private vault, or just at home, speak with your financial advisor. They can help you compare quotes from multiple insurance companies at once; and they’ll have a better sense of what degree of storage the insurer expects.
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