How many people buying gold or silver today are experts when it comes to physical metal?
I REMEMBER starting out in the industry of foreign currency exchange and precious metals back in the early 1980s.
It was exciting; I mean I really enjoyed it. I started in the vault; I was allowed to handle currencies from all over the world. In a few short months, because of my enthusiasm, I also became an expert on all the major currencies. I had my dear friend and tutor Irving Leiber, who was a survivor of the Holocaust and he taught me everything I know about currency and counterfeits. I loved him dearly and I miss that man.
Irving taught me to have a keen eye, to learn from my senses, with my hands, the feel, the look and color. In less than a year he was close to retirement and he was telling everyone if they had questions about currency to come see me. I had great success there as I moved to more important positions within two years.
I left that company but I never forgot what I learned there. I learned that unfortunately there are many people always trying to scam the system. Not just through counterfeit coins and currency but through other methods such as fake checks, and using foreign pennies that had the same size and dimensions as dimes in turnstiles in the US. Learning how to spot such scams was an important step in my education of becoming a wise businessman in currency and precious metals. Almost 30 years later all of what I’ve learned back then is still pertinent. In fact, I would say more so, as I share the knowledge I’ve acquired with people within and outside of the industry.
One of the things that I do and I’m proud of is to educate people to protect themselves from the criminals amongst us, especially those scams invading industries in which I work. Perhaps you’ve heard about the recent attack on the precious metals industry. Within the last few years there has been a flurry of counterfeit coins, bars and medallions of both gold and silver. It’s a small but important risk you should know about.
First, there have been kilo and half-kilo bars of gold filled with tungsten. Last year I was having a meeting with a gentleman from Germany, when he received an email about how someone had sold a gold kilo bar of a recognized brand and it had been drilled and filled with tungsten. The jeweler, who purchased the bar, was suspicious. So he weighed the bar. His scale indicated it was off by about the smallest fraction. Still, he was not convinced and so he cut the bar in half and discovered the crime. He obviously stopped payment on that transaction.
Silver too is open to attack. When I had my own import-export business, I had shipped 100-ounce silver bars that I had bought from a dealer. My customer, a manufacturer, received the bars and went to use them, melting them down to recast the silver. But at that point it was discovered that the silver bars were filled with lead. Luckily for me the dealer I’d bought from made good on all the bars that were bad. However this was not the kind of transaction where I went back for seconds.
I also saw first-hand a scam with silver coins where they were just copper plated with silver. These fakes were discovered when the coins arrived at our vault by the processing staff we used from another company I worked with. It has since come to my attention that fraudsters have started counterfeiting the smaller one-ounce silver bars of various mintage origins as well.
What is a private buyer to do about this? Well if you want to own and physically hold silver or gold bars the most important thing you need to do is to deal with a reputable well-established company that can guarantee to you the products they supply. You must make sure when buying from any of these suppliers that you only receive product which is 100% guaranteed by them for authenticity.
One way that you can be certain of quality is if the company you are dealing with is an authorized dealer of a recognized governmental mint. But your due diligence does not end there, because not every legitimate honest business is authorized, so it is only one measure. Check further references on any company. This is not difficult with the advent of the internet.
As a retail buyer, another thing you need to know is if you are buying larger gold or silver bars the danger actually grows. People think that by buying larger bars they are saving on premiums. This may be true, but as with the 100-oz silver bars I got hit by, you are at more risk of fraud and scams. This is because no machines can detect for certain if they have been changed in some form with another metal. The only way of guaranteeing that is to cut the bars, but at that point no one will buy them back for resale and you will need to have them refined again. Of course, the other alternative is to buy direct from a refinery, but that would raise your costs on those bars. Often they do not work directly with the public.
In the past in the US market, physical ownership was difficult to come by unless you took physical possession of coins and bars. The only other mechanism over the last 30 years was certificate programs, which are also known as warehouse receipts. These are complicated instruments legally, and they are not as liquid as direct physical form because it takes time to transact thanks to having to mail back your certificates. That is probably why precious metals coins and bars have remained popular for many years.
Now though, thanks to the advent of the internet, we have what I believe is the best solution to owning physical precious metals. This will sound like I am tooting our horn and in a way I am, but it’s because it is the truth. Private investors can now access the warranted-quality bullion directly from the professional supply chain. The internet means you can buy and sell instantly, as a time you choose, and without the delay of mailing certificates back and forwards.
To beat the risk of scam products, here at BullionVault none of the gold or silver within our client holdings ever comes from secondary sources. Instead, all the bullion is sourced only from professional wholesale dealers. This protects everyone against counterfeit bars. The gold or silver comes from a market-approved refinery (where the bars are made). The bars are then moved via a market-approved armored car company to a market-approved vaulting facility. So once a bar is fabricated, it is tracked from its origin to the vaulting location. And for as long as the bar is bought and sold inside this market-approved circuit, it retains that guarantee of quality.
Because each buyer knows his seller, if a bar ever did turn out to be bad, the chain of ownership and the record of movement can be traced too. This I would say this is next to impossible. The system creates a natural warranty – what’s known as Good Delivery status – because there is a chain of ownership, inside market-approved storage, leading back through all the buyers and sellers to the original producer. Only when the bar comes out of approved storage or transport does it lose that Good Delivery status. But then it’s most likely on its way to being melted down to make smaller bars or coins, or a piece of jewelry, or electronic bonding wire for your phone. Right there in the melting pot, any fraud would be discovered immediately. The fact is you don’t hear of this happening with professional-market bullion, because the chain of integrity makes the risk of discovery simply too great. Fraudsters attacking the precious metals industry can find much easier pickings in smaller bars and coins outside in the retail trade.
This is the kind of guarantee and comfort you get in working with BullionVault’s physical precious metals exchange online. All the gold and silver traded by our users on the Order Board is already inside the vault, and it only ever comes from (and stays inside) the professional circuit. That gives you the natural warranty of Good Delivery protection. So no customer is ever at risk. On top of that, we guarantee every last gram of gold and silver ourselves as well.
I understand why some people may want to hold some physical form of gold or silver in their home. But for the bulk of it, there are two reasons you will not want to hold it at home. The first reason is the possibility of theft. Why increase risk to you and your family when unnecessary by holding high valuables in your home? The second reason is to avoid the risk of scam bars or coins – and BullionVault enables you to sidestep that risk entirely. How many people buying precious metals today are experts with the physical? When it comes to gold and silver not even I with 30 years’ experience can tell you with 100% certainty without doing a melt and assay if an item is good. Not unless I know that it came from a primary wholesale market source, in which case the market’s natural regulation – through the chain of integrity – reduces my risk to zero in any event.
I don’t really believe that we will ever get to the point where people will carry gold or silver coins again to buy and sell goods. We can however go back to carry paper money that is backed by gold and silver. So I don’t plan on buying equipment to verify authenticity of gold and silver. I doubt that the general public will either. So that is why what I hold at home is now really more of a novelty, and when I invest in gold and silver I do it at BullionVault.
By Miguel Perez-Santalla
Miguel Perez-Santalla is vice president of business development for BullionVault, the physical gold and silver exchange founded a decade ago and now the world’s #1 provider of physical bullion ownership online. A fierce advocate for retail investors, and a regular speaker at industry and media events, Miguel has over 30 years’ experience in the precious metals business, previously working at the United States’ top coin dealerships, as well as international refining group Heraeus.
(c) BullionVault 2013
Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.