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Physical Gold - Why?

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  • #16
    Re: Physical Gold - Why?

    Originally posted by Fred View Post

    Hi. I’m Paul Tustain, founder of BullionVault. This thread was bought to my attention by a customer, who suggested I reply.

    Grapejelly and Sapiens have a point of view and it’s not an uncommon one. But both are too keen to offer advice to you perhaps without knowing as much as they should on matters of fact, law and history. As a result I believe those who followed them would at best waste money unnecessarily, and at worst fail completely in their efforts to secure themselves financially through buying gold.

    I’ll try to straighten their facts, correct their understanding of the law, and provide some examples from history. You’re all capable of drawing your own conclusions.
    Hello Paul.

    Given that you have taken your valuable time to reply to this thread, I will courteously reciprocate by expressing my own views and understanding on the subject matter at hand, saving you the inconvenience of straightening my facts or correct my understanding of the law; especially when I have not articulated any facts or understandings of law. Also, nor do I accustom the practice of having second parties state my opinions without my prior consultation or consent.

    Originally posted by Fred View Post
    Here is what Grapejelly wrote …

    “I agree that physical gold is extremely important but I disagree that Bullionvault or Goldmoney and similar schemes are the same as owning physical gold. They are not. In fact they are not physical gold at all.

    1. your gold may not be there when you want it

    2. your gold could be confiscated by government

    3. the company could be unable to deliver your gold because they don't have it, outright fraud, or mismanagement

    4. your "physical" gold is a liability of someone else. They owe you the gold. You have a paper claim on it. They do everything to convince you with a good story -- and I'm not saying it's untrue -- but the fact remains that this is what you have. A claim on the company for your gold.”
    I agree with Grapejelly in the above statements, and in my personal view and opinion, he is correct for the simple fact that any of the circumstances described in his statements could become true at any time.

    Originally posted by Fred View Post
    Grapejelly writes of a liability as some loose relationship where your gold is somewhere else. He does not understand the difference between a liability and customer property held in custody. Without this knowledge his advice is dangerously naive.
    I do not know for a fact if Grapejelly does not understand the difference between a liability or customer property held in custody, but given the context of his statements, in my opinion he is correct that his property would be someone else’s liability and responsibility if given in bailment, loan or deposit since the property would not be in his possession but otherwise entrusted to someone else under a fiduciary or contractual obligation.

    Setting aside the above and the rest of your marketing piece, including the fear mongering at the end of it. I am in fact too keen, as you have stated, to expose my practices to you or anyone in general gratuitously. Certainly you provide a valuable service, but your service should not be taken to be synonymous with the physical at hand possession of the precious metals.

    Cheers and best regards,



    • #17
      Re: Physical Gold - Why?

      Originally posted by metalman View Post
      me being a wiseass. that's the international beating a dead horse symbol.
      Is there a similar international symbol for "bullshit"?
      Jim 69 y/o

      "...Texans...the lowest form of white man there is." Robert Duvall, as Al Sieber, in "Geronimo." (see "Location" for examples.)

      Dedicated to the idea that all people deserve a chance for a healthy productive life. B&M Gates Fdn.

      Good judgement comes from experience; experience comes from bad judgement. Unknown.


      • #18
        Re: Physical Gold - Why?

        Inflation, gold and energy - a worthy harangue by the Mogambo Guru.

        (In praise of gold, and it's many havens!)

        I was not prepared for what Junior Mogambo Ranger (JMR) Sean sent me, which was an essay from Ellen Hodgson Brown at an outfit called titled "Spiraling U.S. Federal Debt Triggers Decline of Dollar: A Non-Inflationary Solution to the Federal Debt Crisis". She is also known as "Ellen Brown, J.D." at

        She writes that a government's debt is of no consequence whatsoever, as she asks, "why can't the government buy back the bonds with its own newly-printed dollars, debt-free?"
        Huh? Why can't the government simply create money to buy up its own debt?

        Wow! An easy one! Naturally, I leap to my feet and loudly exclaim, "Because all that money would create a firestorm of inflation in prices, you ignorant little twit, and we would all die of the effects of such monetary inflation like all the other morons in history that let their government create so much money! And that is why we don't do it, and that is why nobody does it, you insufferable lowlife halfwit lawyer moron!"

        I suddenly sensed that perhaps I had said something upsetting, although I can't think of what it could possibly be, as my Sensitive Mogambo Senses (SMS) detected the faint, subtle nuance of more fire in her voice when she continued, "The inflation argument long used to block that solution simply won't hold up anymore. To the contrary, it can be argued that for the government to buy back the bonds and take them out of circulation would actually avoid the dangerous inflation that is occurring now."

        Perhaps it was the way my eyes were bugging out in stunned disbelief at what I was hearing, but for some reason she attempts to explain it by saying, "Contrary to popular belief, paying off the federal debt with new U.S. Notes would not be dangerously inflationary, because government securities are already included in the widest measure of the money supply. The dollars would just replace the bonds, leaving the total unchanged."

        At that, I was sure that she was kidding me! She even starts to admit it when she says, "When the Federal Reserve and commercial banks buy government bonds with money created out of thin air, they don't void out the bonds. Two sets of securities - the bonds and the cash - are created where before there was only one." Exactly!

        But then Ms. Brown mysteriously says, "This inflationary duplication could be avoided by allowing the government to redeem the bonds itself and then removing them from the money supply." Huh? Inflationary duplication?

        At the risk of repeating myself, huh? Bonds are money? And bonds are included in the money supply? Huh? What? Huh? Huh?

        Well, apparently so, as she says, "Federal securities are already money. They have been money ever since Alexander Hamilton made them the basis of the national money supply in the late eighteenth century."

        My brain went into spasm trying to make sense of this startling assertion, as I am not an expert on Alexander Hamilton (but I do know that he lived a long time ago, for one thing, and he is one of the guys whose face appears on our money for another thing, for a total of two things), nor could I even begin to comprehend the logical, economic argument of it all. I ended up just standing there, stupefied with my mouth hanging open, my eyes blankly glazed over as I randomly babble incoherently.

        Then, fortunately, she provided an example! That's what I need! An example! The example that is supposed to prove this apparent stupidity goes like this: "You have $20,000 that you want to save for a rainy day. You deposit the money in an account with your broker, who recommends putting $10,000 into the stock market and $10,000 into corporate bonds, and you agree. How much money do you have in the account? $20,000."

        I raise my hand and blurt out, "No you don't! You have some stocks for which you paid $10,000 and some bonds for which you paid $10,000, but you ain't got no money, honey! The government has half of your money and some seller of stock has the other half!"

        Ignoring me like everybody else, she goes on, "A short time later, your broker notifies you that your bonds have been unexpectedly called, or turned into cash. You check your account on the Internet and see that where before it contained $10,000 in corporate bonds, it now contains $10,000 in cash. How much money do you have in the account? $20,000."

        Again I blurt out, "No! You have $10,000 in cash, $10,000 worth of stocks, and the government still has your original $10,000!"

        Again pointedly ignoring me, it gets weirder, as she says, "Paying off the bonds did not give you an additional $10,000, making you feel richer than before, prompting you to rush out to buy shoes or real estate you did not think you could afford before, increasing demand and driving up prices." Hahaha! You are just going to sit on all that cash, and not buy anything or even re-invest it! Hahaha!

        No matter how many times I run this thing through my Tiny Little Mogambo Brain (TLMB), it always comes up with the same answer: The investor originally had $20,000 in cash, and now he still has the original $10,000 in stock he bought with half the money, he has $10,000 in cash, and the government still has the original $10,000 cash he used to buy the bond in the first place, too! That's a total of $30,000, up from the original $20,000! And she says that it would not be inflationary! Hahahaha!

        Hell, the money supply is up by 50% at a stroke! Not inflationary? Hahaha! This is too, too much! Hahaha!

        But while Ms. Brown has accidentally made a stupid rookie error and will be embarrassed all the rest of her life for proposing something so childishly preposterous as a result, the reality is that money supplies ARE rising at double-digit rates all over the world! In the U.S.A. alone it's rising at about 13% a year!

        -- Peter Schiff of Euro Pacific Capital writes, "In current theory, the excess cash piling up around the world is like manna from heaven. Don't believe the hype. Liquidity is merely a euphemism for inflation. Asset prices, including stocks, are simply rising to reflect the diminished value of the currencies in which they are traded. Wealth is not being created, merely re-priced."

        Well, I don't know where Mr. Schiff lives, but around here, it's not wealth that is being re-priced, but poverty. As the inflation in the prices of everything continues to outstrip "income after taxes and deductions", standards of living are being eroded because people can't buy as much stuff as they used to; their relatively static stream of discretionary income has lost buying power against rapidly rising prices.

        For example, from the Financial Times we read that inflation is finally affecting food, and that Hovis bread said it was "preparing to raise bread prices for the second time in six months. The pending increase - which the company attributed to rising wheat costs - is merely the latest in a series of price increases food and drink companies have been trying to pass on to consumers this year. The series has seen costs of making bread, beer, yoghurt and chocolate as well as dozens of others packaged food products become increasingly expensive."

        I know what you are thinking. You are thinking, "Who cares about bread? I don't need no stinkin' bread! I can eat pizza!", which is wrong, whereas you would have been correct if you had instead thought "I don't need no stinkin' bread! I can eat the bodies of dead animals that I find alongside the highway!"

        And indeed you could, as the current market price of road kill is still a very economical zero, which may explain why it is not included in the Lehman Brothers' ingredients cost index, which "covers cocoa, coffee, oats, tea, soyabeans and milk, among other commodities and which is based on spot rates." This index, in case you were wondering, "rose 14.9% in the first half of the year", which "follows a 16.5% increase in the second half of 2006." Yikes! Prices of foodstuffs are up over 30% in twelve months? Yow!

        And what is the biggest gainer? "The biggest increase has occurred in powdered milk prices. These have nearly doubled compared with the same period a year ago. Barley prices have also shot up 53%, while corn prices are up 68%."

        So it is no wonder that people are complaining about prices! And you may be interested to learn the surprising fact that these afflicted people are, paradoxically, not the least bit interested in, or appreciative of, being educated that their inflation problems are all self-inflicted, as they are the same drooling morons that elected the Congressional morons that have spent us into the Hell Of Crushing Debt (HOCD) and allowed the Federal Reserve to create wildly excessive amounts of money and credit to make that grotesque orgy of spending possible!

        To prove it to yourself, the next time somebody says that prices are going up and that they are having a hard time making ends meet, carefully observe their reaction when you politely and respectfully go up to them and, by way of education for their benefit, say, "Shut your damned stupid mouth, you ugly little troll! Your problems are all self-inflicted, as you are the same drooling 'I Love Big Government Creating Perpetual Entitlements' moron that elected the Congressional morons that have spent us into the Hell Of Crushing Debt (HOCD) and who conveniently looked the other way while the damnable Federal Reserve created the money and credit to make that stupid, bankrupting spending possible! It's your own fault, you ignorant little commie creep! You committed economic suicide, and in doing so have economically murdered the rest of us, you filthy piece of stupid, greedy, Leftist crap!"

        And it is going to get worse as more people get more desperate, and things get more weird, like John Stepek at mysteriously using the exact same words as were used in a copyrighted report from a Mogambo Economic Truth And News Service (METANS) broadcast, which bravely reported, "The Mogambo Economic Forecast Institute (MEFI) reckons that the world will face a dollar supply overload within the next five years that could send prices soaring, and coupled with an oil demand overload against an oil supply deficit, the price of oil will soar, and the prices of all other things will soar right along with it, and especially all things imported, and doubly-especially the aforementioned imported oil, in case you weren't paying attention the first time I said it."

        The report ended with, "And with oil being a prime ingredient of making and/or moving damned near everything these days, if you don't think that paying a couple of hundred bucks for a lousy barrel of oil is going to have a hugely inflationary effect on all prices, then congratulations, as you have passed the test! You are officially stupid enough to send $50,000 in cash to me, addressed to 'Occupant', in return for which I will pray that your children do not end up being as stupid as you are. And remember; cash only!"


        • #19
          Re: Physical Gold - Why?

          I want to find the best way to invest in gold, appropriate for my particular financial circumstances, and so read Mr. Tustain's post about BullionVault with interest.
          It is apparent from what he says that the system is well thought out and covers a lot of safety concerns. Yet, I still find myself wondering if it's worthwhile to use this service . . . .

          Here are some of Mr. Tustain's reasons for investing in BullionVault rather than other forms of gold, followed by my comments:
          1. The threat of confiscation:
          Six examples of government confiscation are given by Mr. Tustain, including "In April 1933 by order of President Roosevelt, any one found hoarding over $100 in gold or gold certificates was made subject to two years imprisonment and $10,000 fine."

          However, Mr. Tustain also says, "The 1933 USA confiscation occurred when gold and money were effectively the same thing. The USA underpinned the 1933 dollar with gold, so private hoarding, which was widespread, was punching a hole in the government’s faltering monetary honesty. Since the dollar and gold are now wholly independent there is no similar motivation for confiscating gold today. . . . My view is that a modern government finding itself short of a few hundred billion dollars a year is very unlikely to chase an insignificant sum of hard-to-get foreign gold when it has a sitting duck in the form of its citizens’ stock of privately owned real-estate."

          2. Gold will be unacceptable for purchases:
          Mr. Tustain says has been unable to find anyone to accept a gold coin for payment in restaurants or for everyday items.

          While it's true that in today's society gold may be considered suspect, certainly in times of extreme economic problems and inflation, payment with gold would be welcomed. In troubled times, barter would become widespread, including exchange of items such as tools, livestock, and gold or silver coins.

          3. Gold will be stolen, and "every man is your enemy":

          All one's possessions, including stored food, might become the target for theft. While it's true that someone regularly trading gold may experience a greater threat to their well being, this has always been true for the wealthy, and extra precautions would be required for those holding gold.

          4. Governments could raise capital gains tax to "punitive levels", thereby "effecting a confiscation of wealth".

          My understanding is that governments tend to protect the wealthy members of society (other governments taking over after revolutions), and a capital gains tax would especially hurt their rich "friends" and themselves. Therefore I believe that punitive capital gains taxes would be unlikely. Also, if society devolved to the point where gold was used in trade, it's unlikely that there would be much record-keepping with such activity, and therefore little fear of negative tax consequences.
          While looking for ways to preserve wealth, I was initially attracted to BullionVault. It sounds like a no-brainer, to stash gold in a Swiss vault.
          But as I thought about it more deeply, I decided to go with a gold ETF. My reason is this: I believe that the price of gold is likely to soar in the near future, but could plummet quickly when the bubble pops. I want to be able to get out as fast as possible when that happens, and I believe that the trading volume with an ETF would be vastly higher than with BuillionVault, and therefore it would be far easier to bail out when the time was right.

          I also decided against keeping much physical gold for the same reason. I suspect that there are a relatively small number of gold dealers in the US, and they would be swamped in a rush to gold. However, when the gold bubble finally popped, you wouldn't be able to get them on the phone unless you were extremely lucky. Of course, some gold coins stashed away for a Black Day isn't a bad idea, but these aren't for selling to cash in on a bubble.

          I am very open to hearing opposing arguments to the points I've made about BullionVault, but as it stands now, I don't really see the advantages . . . .
          Boycott Big Banks • Vote Out Incumbents


          • #20
            Re: Physical Gold - Why?

            Raja -

            Here is a thought provoking idea. If credit markets deflate sharply (seems a very current topic) and the currencies get sucked into a major bout of inflation to cushion the credit markets markets, presumably this would be a direct precursor to a time period when gold is appreciating strongly in reaction to sharply increasing currency issuance.

            However whatever currency mechanism is then re-introduced after a major currency inflation to stabilize things and introduce a new pegged senior currency, will probably require, at least in a transitional period, that the new senior currency be pegged to some basket of hard assets, if only to re-instill global trust.

            It's hard to imagine a prolonged global bout of severely unrestrained currency debasement without the re-anchoring of the "senior currencies" seeking a peg in real assets subsequently.

            Has the thought crossed anyone's mind that gold would not spike and then collapse like a mere peaking commodity in such a scenario? If it becomes one of the core assets against which a new stabilized senior currency is pegged (maybe one of a basket of hard assets), then gold may appreciate strongly and remain at sharply appreciated levels for the duration of the introduction of a new pegged monetary unit. That could mean for years. It bears thinking about. There would be a sharp correction down from the most speculative high, but that correction would absolutely not retrace down to anywhere near present day levels.

            "Timing the investment" becomes moot, looking forward from today's extremely low bullin prices relative to global liquidity - as "market timing" misses the whole point of correctly estimating the sheer size of the run-up required to make bullion valuable enough to act as even a minute anchor to any stabilized currency. It's all a question of whether you believe any stabilization of global currencies will inevitably require a hard asset anchor.

            Of course if you believe today's fiat system will be replaced by a new, improved, "stabilized fiat system" then gold might be a lousy investment or just run up like a speculative commodity.

            If stabilized currency will require even the marginal services of gold, then there would definitely be a premium to owning real, physical gold in a jurisdiction where it's private ownership has been inviolable for centuries - and certainly Switzerland comes to mind.

            The quality of Bullion Vault's vehicle rests primarily in which jurisdiction it's set up. Their system of checks and audits sounds excellent to cover the other end of the remote ownership mechanism.

            In a world where gold has been re-introduced as part of a basket of currency pegging, having your bullion secured in a fiercely independent jurisdiction, with a premium set of audits of your personal property set up, should probably rate fairly high in terms of ownership solutions.

            Best global solution of all - better than one's own custody in a place like North America in such a future - would be to have one's own private account in such a nation, wherein one's own numbered bullion is stored in a private bank to one's own account. These are some of the world's premier internationally independent banking institutions, as everyone knows. Hence in Zurich or Geneva, Bullion Vault seems not bad at all.


            • #21
              Re: Physical Gold - Why?


              If timing isn't a problem, then it makes no difference whether one is in BuillionVault or an ETF.
              If timing is a problem, then it may be better to be in an ETF.
              If stabilized currency will require even the marginal services of gold, then there would definitely be a premium to owning real, physical gold in a jurisdiction where it's private ownership has been inviolable for centuries - and certainly Switzerland comes to mind.
              If confiscation is not likely not to become a problem, as Mr. Tustain suggests, then why the need to keep gold in an "inviolable" Swiss Bank?
              Boycott Big Banks • Vote Out Incumbents


              • #22
                Re: Physical Gold - Why?

                Raja -

                There's nothing like a little extra insurance to sleep soundly at night.

                Best is to distribute your holdings to two or three different international custodial arrangements. Real estate in undervalued developing locations might also be good. However when I hear that apartments in the center of Saigon are selling for a quarter of a million USD (my barber told me), then maybe those aren't bargains any more (??).

                If I had relatives in Mumbai for instance, I'd look seriously into finding an opportune market pullback to buy a condo in some good location there for the ten year investment term, but I don't know if that market is now severely overbought - and actually I suspect it might very well be so! Maybe it will stay chronically overbought for the next decade, defying everyone's better judgement to buy in. Who knows? You have to study it hard, and then use your common sense and your instinct as to when to commit.

                But you see what I'm saying - a condo or house in a principal city in India with great growth fundamentals might be as good as gold in terms of diversifying your assets to hedge inflation. Putting your investment in the path of very strong growth? Personally, I don't think even severe global credit problems will slow India growth down for more than a year or two now. They will find a way to maintain 8% annual GDP growth regardless.

                Of course, if you believe in devastating global deflation - then all bets are off and it's best to just hide under a desk somewhere and wait until you hear the last bricks and plaster have stopped crashing down onto your desktop. :rolleyes: