Y? Series – Why should you safekeep precious metals abroad?
This question is obviously a crucial one when you offer a service like the one we offer at Global Gold. Our clients are wealthy families and investors from around the world. Why do they store with us in Switzerland, instead of keeping their gold “at home”, in their home country?
There’s two ways to store your metals: You can buy it and keep it at home, possibly in a safe or in a hole your back yard. Or you can buy it and have someone else store it for you.
Good storage services offer fluid buying and selling at competitive rates. And they come with high-security facilities, regular audits and replacement insurance to protect you from the risks of fraud and theft. The safety concerns, as well as the illiquidity that comes with home storage, are the primary drawbacks of the “garden-digging” option.
Reasons for jurisdictional diversification
The more important question, however, is not whether you should keep your gold and silver at home or with a professional and reputable vaulting service, but rather why trade and safekeep with a professional storage service abroad instead of your home country?
The bottom line is this: Offshore gold storage reduces your risks and expands your range of options.
There is a host of reasons to hold precious metals in a foreign location. Generally, they start with and revolve around the level of trust - or distrust - you have in the political and economic stability of your home country, and the severity of your concerns regarding your government’s potential for abuse of its power.
Keeping all your assets in a single country, subject to the whims of a potentially over-intrusive government, poses a significant threat to your wealth. This is particularly true today, with an increasing number of countries suffering from excessive debt. Therefore, jurisdictional diversification can provide an additional, and much needed, level of protection.
In summary, internationalizing your wealth, can mitigate a host of critical risks, all of which come with historic precedents:
Litigation and administrative proceedings – in some countries, litigation is rampant, while seizure of property by a government agency without notice or regard for due process is a serious and widespread risk.
Inflation – across the globe, we have witnessed decades of monetary expansion; inflation expectations are now on the rise. Inflation and currency debasement will destroy wealth that is not properly protected.
Capital controls – this is a common form of financial repression in many countries today; when your government prohibits you from transporting gold or any other form of money out of the country, it is already too late.
Government confiscation – your government may order you to “sell” (or even “gift”) your gold for “the common good”, at a pre-determined price.
Prohibition of personal gold ownership – private gold ownership can be declared illegal and you can be forced to convert your gold into government bonds within a given period.
Managing these risks is crucial. While they cannot be eliminated completely, unless you physically up and leave the country you live in, they can be significantly reduced. Jurisdictional diversification is a key element of prudent long-term asset protection. As bankrupt governments tend to become increasingly intrusive, jurisdictional diversification becomes increasingly necessary.
Caveats of international storage
Depending on the country you live in, the necessity to jurisdictionally diversify your wealth will vary. Clearly, if you live in a country with large debt obligations and a government with coercive tendencies and heavy-handed financial repression, you absolutely need to protect yourself by keeping assets abroad. Remember that it is always easier to follow your wallet than it is to have your wallet follow you!
History contains many stories to prove this point. Consider Jewish refugees during World War II, or Iranians after the regime change in the 50’s, or more recently, Syrian refugees having to start over with nothing. Just because a country has “freedom”, “democracy” and “rule of law” prominently displayed on its label, doesn’t mean that you will find fairness and respect for its citizens’ rights in the actual workings of its government, particularly in times of economic crisis. Even a freedom-loving country like America has a history of gold confiscation.
However, before sending your hard-earned money offshore to buy and store gold, silver or to be invested with a global asset manager, you have to do your homework. First of all, you need to pick the right jurisdiction. Then you have to pick the right institution and people to work with. Not all programs are created equal, and not all service providers and advisors are trustworthy and sound.
Sending and keeping wealth offshore clearly requires some planning and it is highly dependent on one’s individual goals and specific circumstances. However, here are a few considerations and guidelines that should be helpful:
Diversify to reduce your risk exposure: Make sure the risks you are diversifying away from do not exist in the place you are sending your assets to. That would obviously defeat the point. For instance, if you are concerned about the fiscal and political stability of your country, you will want to avoid storing your gold in a jurisdiction with high unemployment, excessive debt and an unstable or aggressive government. You will want to select a destination with a history of strong depositor and privacy protection.
Don’t treat your foreign-stored gold like a checking account: Remember, even though gold and silver are very liquid when held with a professional service, you are still dealing with physical goods overseas. They cannot be treated like cash or a checking account. The goods need to be transported, delivered, stored. While the buying and selling process of physical metals has accelerated over the past years thanks to technology, the storage procedures as well as the payments from and to foreign banks can still take a few days.
Keep an emergency stock close to home: Obviously, metals you safekeep abroad will not be as readily available as might be required in a crisis. In that case, you will want rapid access to a reasonable stock of metals, one that affords you liquidity for a period of a few weeks or months. Generally, a mix of silver and gold makes sense. However, home-held metals lose some of their liquidity and possibly some of their value too. By removing them from a “grid of integrity”, you diminish your access to a liquid secondary market.
Use professional transportation services: Generally, we advise against transporting existing metals yourself. First of all, customs and border procedures need to be considered and complied with. And then there are the obvious security risks. When looking at professional transportation services, it is important to select one that includes proper insurance. Alternatively, depending on the type of metals, selling and buying overseas may be the better option.
Be compliant: Make sure you understand the reporting and tax rules of your home country, or more precisely, your tax residence. In most jurisdictions, privately stored precious metals are non-reportable. However, you need to review the specifics of the rules and of the service you are signing up for.
Get proper advice: Finally, as you will realize by now, when it comes to wealth management, even if it’s the simple storage of a few gold bars overseas, you will fare best if you seek sound, professional advice and guidance. Asking will not cost you anything. On the contrary, the Do-It-Yourself approach may cost you a lot of time and money…
Ask for a private consultation: To learn more about trading and storing metals offshore, contact us for a private consultation by clicking on the link below. We’ll be happy to explain the pros and cons and how to stay safe and sleep soundly at night.