You’ve probably heard the saying, “Only when the tide goes out do you discover who's been swimming naked.”  This has perhaps never been more true for the precious metals markets than right now.  Some investors are finding out that they only owned the concept of precious metals, or exposure to metals prices, by way of “unallocated” ownership units of gold or silver.  Amidst growing awareness of what buying into such unallocated holdings of precious metals really means for investors, there has rarely been a better time to own physical precious metals than right now.  The difference between owning precious metals and owning the idea of precious metals is like the difference between owning something real versus owning something imaginary.  In the end, at least from the precious metals perspective, it is only the addition of physical metal to a financial portfolio that offers true diversification.  Our readers will be comforted to know that the United States Gold Bureau offers physical precious metals.  Whether vaulted at the Texas Bullion Depository or kept at your own secure location, products offered by the U.S. Gold Bureau are physical metals.

As dense and weighty as precious metals pieces are, you might think people would not easily confuse them with thin air.  But that is exactly what has been happening in many cases.  Some well-known mints and global bullion dealers offer clients the opportunity to purchase “unallocated” ownership units of gold and silver, which can be converted to “allocated” or “pooled” physical metal accounts later, for physical delivery of the metal in the future.  It has now come to light that in many cases, the physical metal supposedly on hand to back the “ownership units” held by clients doesn’t exist.  Clients of these firms are being told it could take one to two years before their “positions” can be converted to physical metal.  In other words, what they thought was an allocation of precious metals was really just an allocation of the idea of precious metals.  

To add insult to injury, some people have been paying storage fees for metal that doesn’t exist.  In contrast, when purchasing gold, silver, platinum, or palladium from the United States Gold Bureau, you can choose to have it stored at the Texas Bullion Depository, for a monthly fee.  The metals you purchase and own and that can be sent directly to you (whenever you choose) are the same metals that can be stored in the depository.  They are protected and fully insured while in storage, whether the metals are in bullion or numismatic product form.

Typically, a “pooled” account means that you have partial ownership of an identified bar of precious metal.  Using silver as an example, a single 1,000-ounce bar might be owned by 50 different people, claiming 20 ounces each.  This bar would have a serial number and would be accounted for in the vault of the mint or bullion dealer handling the bar.  The fees for metal held in a pooled account often reflect the lower costs for fabrication and storage of fewer, larger bars of metal.  The idea is that, upon request, a client can pay an additional fabrication and storage fee to convert the position to fully allocated metal stored in their name only.  Recently, some clients of a national mint that owned 10,000 ounces of silver in a pooled account were told they could not receive delivery of 10 1,000-ounce bars for three to four months.  In other words, the “pooled” silver was not there to deliver – at least not right away.

An “unallocated” account means your exposure to gold or silver is indirectly backed by company-owned precious metals used as rolling stock.  As metal is converted into pooled or allocated accounts, or sent out for delivery, the mint or company is supposed to purchase an equal amount of metal as working capital to replace it.  People sometimes choose this option because there are lower premiums when buying or selling the position, and often no storage fees charged.  Ideally, an unallocated account can be upgraded to pooled or allocated upon request, for an additional fee.  Some clients with unallocated accounts requesting conversion for physical delivery are being told they could wait a year or more before receiving their physical metals.  In other cases, conversion is not allowed.  The only alternative is to cash out, at the spot price.

The strangest thing about some of these arrangements, is that they are disclosed upfront and are fully legal.  In the fine print of the account paperwork, many of these particulars are spelled out and explained, albeit in legalese and language unfamiliar to many.  Some believe that owning an unallocated precious metals account is closer to owning precious metals than owning a precious metals ETF on the stock exchange.  Perhaps in normal times, this might be true.  But in periods of physical metal shortages and constraints, there is no substitute for owning precious metals outright.  A popular subreddit thread called r/Wallstreetsilver has more interesting comments and discussion on the topic.

What has caused the tide to go out and expose the naked swimmers all of a sudden?  As you are aware, there is incredible demand for physical gold and silver right now.  As you can see from the chart, as of April 5, 2021, the U.S. Mint had sold double the amount of Silver Eagles it sold in a similar January through April timeframe in 2018, and 18% more than that same timeframe last year.  Gold Eagle sales from the Mint are 6% higher, spread across all dealers, including the U.S. Gold Bureau.  Combined with that, there are shortages manifesting at the mine supply level.  Peru has been the second highest producer of silver for many years.  But due to the pandemic and other concerns, its silver production is off by nearly 15% so far this year.  The country is also down 26% for gold production.  Similar cuts have been experienced in other nations and regions around the world.  We wrote about looming shortages earlier here.

Some of these difficulties are systemic, with effects being experienced industry wide.  Since the #silversqueeze movement started, silver inventories have been reduced at the COMEX by those taking physical deliveries in various forms.  Eventually, this may make it more difficult to manipulate the paper price of silver (and gold).  Increased physical demand has created a larger-than-normal difference between spot and physical price, a trend that is likely to continue.  The safest way to invest in precious metals is to look at what bullion or numismatic products are currently in stock at a precious metals dealer like the U.S. Gold Bureau and purchase such physical items to add to – and thereby, diversify – your investment portfolio.  In the days to come, the biggest difference won’t be between those who own Gold Eagles or Silver Eagles and Gold Philharmonics or Silver Philharmonics.  The difference will be experienced between those who own physical precious metals and those who don’t.