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Thread: Physical Gold - Why?

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    Jun 2006
    US, Europe and Asia

    Default Physical Gold - Why?

    Physical Gold - Why?

    by Paul Tustain (BullionVault)

    April 15, 2007

    Note: I learned about BullionVault (BV) about a year ago from a friend who is a partner in a Boston Venture Capital firm. He asked me to call Managing Director (the UK equivalent of a CEO) Paul Tustain, to assist my Boston friend to see if I can help get him into a round of funding that Paul was raising for BV, and to assist with due diligence. Turns out that before founding BullionVault in 2002 Paul, like me, ran a couple VC-backed high tech companies, plus we both know our gold history, so we hit it off right away. In several conversations I've had with Paul, and I will interview him in the coming weeks, I have concluded that he is the smartest guy in the gold business. His company uniquely provides a service that offers all the advantages of owning physical gold but without the disadvantages of keeping it in your home or in a safe deposit box, and even protects it from political events which may some day limit US citizens' access to the physical gold they own and hold in the US. Because the BV service is a unique way to own gold, it is also more difficult to comprehend than more familiar methods, such as stocks, coins, and ETFs. To address this we plan to run, with Paul's permission, a few of his notes on BV here. -Eric Janszen

    Why does BullionVault make sure you get outright physical ownership of gold? After all, it would be so much easier to offer you a gold account.

    The reason is risk of default. One of the patterns which recurs throughout history is that growing financial sophistication leads to widespread expansion of credit and exposure to default, and few people successfully avoid it when it matters.

    Banks, pension savings, mortgage guarantors and all the major financial institutions on which we depend are now tied up in a web of undelivered assets. A is the registered owner of a bond payable by B, the principal on which has been credit-swapped out to C. The terms are controlled by a deed drafted by an investment bank D, which itself receives the interest, which has been aggregated with 30 others and sold notionally to E. E is foreign, and flattens the FX risk with a bank F, who sells and rolls a future on his long currency book, which is bought by another bank for an assured profit by running the position against a higher yield bond bought from a junk-status borrowing customer, which has been insured against the risk of default with G, a major insurer, who happens also to be A.

    These are the styles of relationship which dominate the world in which ordinary peoples' savings are bound up, and they are profitable in the short term. This is why financial rather than commercial companies increasingly dominate the list of the top companies in America and Europe. They find it easier to make profits by providing credit and assuming eventual repayment, rather than by actually demanding settlement; a habit which could put off no end of potential customers.

    All our common savings products are bound up in these webs. At BullionVault we do not know when and where these webs will break, and, with the greatest possible respect, we don't think you do either. But it is so certain that they will break, and at an unexpected place and time, that we believe every forward thinking person with a respectable private reserve would do well to opt out with at least part of their savings.

    A purchase of gold is a good way to do this. But gold accounts, indexes, spread bets, and futures all fail to extricate the buyer from the web of dependencies, because they are based on undelivered gold. The only way to opt out of the web is to own physical property outright.

    This is why BullionVault has concentrated on being the best way in the world to do just that.


    Paul Tustain, Director


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    Last edited by FRED; 04-15-07 at 03:18 PM.



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