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Friday, June 06, 2008 11:43 AM

Minyan Mailbag: How Safe Is My Gold?

Mish Moved to MishTalk.Com Click to Visit.

Minyan "SC" is concerned about gold in safe deposit boxes.
Just how safe is it? "SC" asks:

There is a disturbing comment by Jim Sinclair about safe deposit boxes in Britain not being so safe from the prying eyes of the government.

As a GoldMoney customer, I want to hear from James Turk on this. I waited to try GoldMoney until they added Swiss storage because I didn't trust UK. I thought the Swiss storage option would be bulletproof, but Sinclair says "nope".

I have my main offshore allocation in the Perth Mint down in Australia. I wonder if that will mean a damn thing when the SHTF.

Is backyard burial the only option? Same as 500 years ago?
Safe Deposit Boxes Raided

The article to which "SC" is referring is Safety deposit box raids yield £1bn of drugs, cash and guns.
Police have seized a potential £1 billion “treasure trove” of cash, drugs and guns in an unprecedented raid on concrete vaults holding 7,000 safety deposit boxes.

More than 300 officers and staff were involved in simultaneous raids at three depots in London’s Park Lane, Hampstead and Edgware. Officers have secured the concrete and steel vaults and will take several weeks to remove each box, using angle grinders, to a secret location where they will be prized open with diamond-tipped drills.

It is believed that a top tier of criminal masterminds may have rented out “the majority” of the boxes.
Jim Sinclair’s Commentary
What happens in Great Britain happens in the U.S.A. and vice versa. The action reported [above] erases what semblance of privacy any of us have left.

This invasion of safety deposit boxes in Great Britain is quite a serious event and throws a major spanner into any hope for bullion safe deposits with a guarantee of privacy.
Concerns In Canada

Bloomberg is reporting Gold Web Sites Used to Finance Terrorism.
Canada's financial intelligence agency said criminals may be using Internet-based companies that sell electronic gold to launder money or finance terrorists, the Globe and Mail reported.

The Financial Transactions and Reports Analysis Centre of Canada said Web sites that offer transactions in units backed by gold and silver have reached a critical mass and are allowing millions of transactions, the Globe said today, citing a report obtained through access-to-information legislation.

The Web sites allow individuals to move money around the world and bypass financial reporting rules set up by countries such as the U.S., the U.K. and Canada after the Sept. 11, 2001, terrorist attacks, the newspaper said.
Reply From James Turk
Hi Mish

Thanks for bringing this post to my attention and giving me the opportunity to respond. I am in London and have therefore been reading about the raid of the safe deposit boxes. I don't know if you are aware of it, but there was a similar raid of safe deposit boxes in California not too long ago.

Every storage choice comes with pros and cons. And each individual probably weighs up those pros and cons differently. For example, burying some metal in the backyard or someplace else you consider to be safe may not be a bad idea, but it may not be for everyone. Also, it comes with some downside. It is not a very liquid asset, and is it really safe? Someone with a metal detector could easily locate a buried stash.

To me, it seems the best answer for storage is diversification. In other words, make arrangements to store your metal in different ways. But you have two basic constraints. You can either store the metal yourself, or hire someone to store it for you (which is what we do in GoldMoney). There are no other alternatives, so you have to achieve diversification within these two alternatives.

With regard to the first alternative, if you feel comfortable with it, go ahead and store some metal at home or work, or wherever you think it may be safe and if you think it is not at risk. But don't put all your eggs in one basket, and don't store all your metal in the country where you live. In this regard, GoldMoney can help to achieve some diversification with vaults in the UK and Switzerland (and we plan to add more vault locations in the future to give our customers more choices to achieve geographic diversification). And of course, GoldMoney customers get exceptional liquidity because they can easily convert their gold back into a national currency, or even use their gold as a form of payment by 'clicking' it to another GoldMoney customer.

There are a couple of other points I would like to make. It is actually GoldMoney that stores in the UK the gold and silver owned by our customers, and Via Mat Int'l, the vault operator, does not know who our customers are. Via Mat is storing the metal for GoldMoney's customers, but rely upon us to make sure we comply with today's know-your-customer and anti-money laundering regulations. All customer data is kept in the Channel Islands, which is where we operate and where we are regulated, which brings up another important point.

The safe deposit operator in the UK appears to be a target because according to some press reports I read, they were not following required anti-money laundering procedures. The directors of the company were charged with breaking UK law. Therefore, in this sense, the UK raid has some similarity to what happened a few months ago with the Bank of Liechtenstein.

The BoL too had become a target for gov'ts because as I understand it, BoL was not following OECD requirements on anti-money laundering. In contrast, storing metal with GoldMoney is different because we of course are not a target because we are regulated in the Channel Islands by its Financial Services Commission, and we follow the letter of the law there.

Whether the raid in the UK was justified or not, I cannot say. But clearly, one has to be very careful about where they place their assets. And sadly, a lot of damage to individuals' property rights is being done in the name of anti-money laundering and other gov't schemes.

Lastly, regarding the Perth Mint reference, I would just like to point out that one does not own physical metal when they own a certificate. They instead own a liability of the firm issuing the certificate, which is why the Perth Mint certificates come with the guarantee of the government of Western Australia. Each individual has to decide whether that guarantee is sufficient incentive for them to own the Mint's liability instead of actual physical metal. In other words, a "certificate" is not a "storage receipt". Unfortunately, many people do not understand the difference.

Shocking Raid In California

The raid in California that James Turk referred to is quite shocking. Let's take a closer look at Not-So-Safe-Deposit Boxes: States Seize Citizens' Property to Balance Their Budgets.
The 50 U.S. states are holding more than $32 billion worth of unclaimed property that they're supposed to safeguard for their citizens. But a "Good Morning America" investigation found some states aggressively seize property that isn't really unclaimed and then use the money -- your money -- to balance their budgets.

San Francisco resident Carla Ruff's safe-deposit box was drilled, seized, and turned over to the state of California, marked "owner unknown."

"I was appalled," Ruff said. "I felt violated."

Unknown? Carla's name was right on documents in the box at the Noe Valley Bank of America location. So was her address -- a house about six blocks from the bank. Carla had a checking account at the bank, too -- still does -- and receives regular statements. Plus, she has receipts showing she's the kind of person who paid her box rental fee. And yet, she says nobody ever notified her.

To make matters worse, Ruff discovered the loss when she went to her box to retrieve important paperwork she needed because her husband was dying. Those papers had been shredded.

And that's not all. Her great-grandmother's precious natural pearls and other jewelry had been auctioned off. They were sold for just $1,800, even though they were appraised for $82,500.

California's Class Action Lawsuit

Ruff is not alone. Attorney Bill Palmer represents her and countless other citizens in a class action lawsuit against the state of California.

California law used to say property was unclaimed if the rightful owner had had no contact with the business for 15 years. But during various state budget crises, the waiting period was reduced to seven years, and then five, and then three. Legislators even tried for one year. Why? Because the state wanted to use that free money.

Seizing More Than Safe-Deposit Boxes

It's not just safe-deposit boxes. A British man went to retire and discovered the $4 million in U.S. stock he had been counting on had been seized and sold for $200,000 years earlier -- even though he was in touch with the company about other matters.

A Sacramento family lost out on railroad land rights their ancestors had owned for generations -- also sold off as unclaimed property.

California's unclaimed property program was so out of control that, last year, the courts issued injunctions barring the state from seizing any more property until it made reforms.

Once unclaimed property is delivered to the state, it is now held for several months while the state tries to contact the owners, rather than it being immediately sold off or destroyed.

Is Anyone Really Lost?

Which raises the question, in the Internet era, is anybody really lost anymore? California and other states are just beginning to make use of modern databases that can find most anyone in minutes. Unfortunately, California only uses those databases to search after it has already seized a citizen's property.
How Safe Do You Feel Now?

Those are lengthy snips but from a very large article. Inquiring minds will want to read the entire thing. One thing's for sure: It's hard to feel 100% safe about safe deposit boxes, at least in California, and now it seems London, and arguably Canada.

Full Disclosure

I have an account at GoldMoney and I am also part of the GoldMoney affiliate program. That means if you open up a GoldMoney account from my blog I benefit. I have no concerns about holding gold at GoldMoney, at least in comparison to holding it anywhere else. Safety it seems, is now relative. However, as noted above, I cannot be considered a completely unbiased reference.

Final Thoughts

I am highly suspicious of the claim that terrorists are hiding out in gold. It is not that easy to move around, controls are amazingly tight, and with every government nosing around in it, it would seem to me to be the one of the last places terrorists would attempt to hold money.

Regardless, make no mistake about this: Gold Is Money. Proof is easy to find. Gold acts like money, it is money. And governments sure are treating gold as if it was money, aren’t they? Actions speak louder than words.

Mike "Mish" Shedlock
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