Selecting Storage for your Precious Metals

This is a deep-dive blog post focused on helping individuals safeguard their physical precious metal assets. It provides crucial insights into various facets of storage facilities, explaining the difference between direct storage and affiliate programs, the importance of asking questions about facility structure and financial health, understanding storage contracts, and much more, empowering the readers to make informed decisions.


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This article is meant to be a guide on what you may want to consider when selecting a  storage facility or precious metals program to hold, safeguard, custody, or manage your  physical precious metals holdings. Understanding these key points is critical to properly  managing your risk exposure surrounding your precious metals.  

The relationship you have with your metals is critical. This sounds simple, however, it  can become very complicated. First and foremost, do you have a direct relationship with the  facility where your metal is being held? In other words, are you contracting with the actual  storage facility or a company representing to be a depository? It is very common for a gold  dealer to set up a subsidiary or affiliated company to offer storage services. In some cases, the  subsidiary or affiliated company enters into a master agreement with the actual storage facility  whereby the facility only takes direction from the subsidiary or affiliated company. You have no  relationship with the actual storage facility but rather only with the dealer’s subsidiary or  affiliated company. In short, the subsidiary or affiliated company is simply a middleman. In this  instance, you have become a part of an affiliated program rather than having a direct storage  account. There are additional risks with such programs because more hands are involved  between you and your metals.  

When selecting a storage facility, how do you know if a facility properly and accurately  represents everything they say they are in their marketing? In addition to reading the storage  agreement carefully, be sure to ASK QUESTIONS! Although storage facilities are not always  forthcoming with information, and with good reason due to security concerns for their clients’ assets, allowing prospective clients to assess the risk associated with a storage facility can be  done without adding risk to the facility or its existing clients’ assets. For example, a storage company can provide full or relevant disclosures about its principals, organization, and affiliates.  If the storage company is tangled with various affiliates, these disclosures should allow individuals to decipher how each affiliate is structured and related to the storage company, which company or affiliate is actually profitable or contributing to the support of the storage operation, and which affiliates are simply companies used to insulate the principals from liability.

Please remember, when you sign the storage agreement, you are only entering into an agreement with  the storage company and not with any affiliates. Signing a contract with a storage company that  has very little capitalization or needs the support of its affiliates or parent company to stay in  business increases the risk to your assets stored at such a facility as these facilities may present  substantial going concern risks (meaning, their ability to stay in business). When faced with a  complicated or multi-affiliate company structure, consider: Did the principals, who own the  storage facility along with the other affiliates, create the structure to maximize the benefits to themselves (tax structure, avoidance of responsibilities or personal liabilities, etc.) at the expense  of the clients? Does this create a conflict of interest that contrasts directly with the client’s  interests and add additional risk? What happens if the affiliates or parent company stop making  money and can no longer support or subsidize the storage facility operation? What would this  mean for the storage facility and ultimately your metal?

In today’s environment, precious metal transactions have seen an enormous drop in  volume and profitability. Properly capitalized storage facilities with clear structures are  important now more than ever.

Do not be afraid to ask tough questions. Is the facility willing to  provide detailed information about how it is structured and supported and the relationships  among affiliated entities? Is the facility willing to provide you with a copy of its balance sheet  showing its assets and capitalization, its debts and overall financial position? In the past, many  dealers entering the storage business offered lower storage fees to attract clients. These dealers  were making most of their profits from the transaction portion of the trade, which was then  needed to subsidize the storage business and its low rates. Now that trading revenue has  collapsed, how realistic or sustainable are the storage fees being charged and how viable are the  storage facilities being supported by such dealers? While some storage programs have already begun to raise storage fees, in this challenging environment, other storage programs and  depositories have continued to lower fees to attract new clients. Lower fees have to be supported  somehow. Storage facilities have many fixed costs that require a certain amount of cash flow.  Cutting corners on security features or other items or increasing deductibles on insurance to  lower costs and sustain lower rates may not always be in your best interest. Remember, you get  what you pay for!

You should understand the difference between allocated and segregated storage. Fully  insured, segregated storage is the most secure method of storage. With allocated storage, your  metal can be commingled with the metal of other clients or leveraged with multiple other clients  into one bar. Fully segregated storage, on the other hand, requires that your holdings be kept  physically separate from other client holdings. Subsidiary or affiliated storage companies may  offer segregated storage, but in reality the actual depository only recognizes the master account  holder. In this instance, ask how your metal will be separated and not commingled with that of  other clients. What happens if you want your metals and the depository cannot communicate  with the master account holder, the only one authorized to provide instructions to the depository?  This is one form of counterparty risk.

Many storage providers are lightly regulated or not regulated at all. This lack of oversight  may allow storage companies, their principals or employees, or any affiliated parties to use  puffery or exaggerated advertising claims that may overstate the truth or even mislead potential  customers to lure them as clients. It’s important to not rely on marketing or advertising claims  but rather to read the actual storage agreement and any disclosures provided to avoid miscommunications or outright client frustration. For example, it’s common for storage  providers to advertise “we cover and insure all risks” or “we have an all-risk insurance policy”. In reality, despite such claims, the actual storage agreement may include exclusions to certain  coverages or even “hold harmless” clauses that may serve to remove the storage company from  any responsibility or liability. Remember, “advertising claims” may not provide the same level  of information as “disclosures” within a storage agreement. No matter what you hear or read  from an advertisement, make sure you read the fine print within the storage agreement. These  disclosures will define the relationship you have with your storage facility or program.

In addition to little or no regulation, many storage facilities or programs have  discriminatory fee schedules between certain types of segregated or allocated accounts. In  addition to common breakpoint pricing schedules that provide lower fees to higher value  accounts, many storage facilities or programs provide unusually low rates to certain types of  accounts such as an Individual Retirement Account (IRA). The rates an IRA account holder pays may be a fifth of what a regular or non-IRA account holder would pay.

Please keep in mind, gold  is gold whether it is in an IRA or not. The security and insurance needed is identical. At the very  least, this selective or discriminatory pricing schedule forces regular accounts to supplement or  subsidize these greatly reduced fee schedules for other accounts. This type of practice should  raise potential questions about the storage program’s business practices and ability to generate a  well-capitalized and strong balance sheet. For example, if a regular account is paying .70% a  year in storage fees, why does it make sense to charge an IRA account only .12% a year for the  same value of assets? Either the storage fees for the regular account are being overcharged or the  IRA account is being severely undercharged. Again, look at the motive for the storage operation  charging these enormously different rates. In many cases, the storage program or facility is  making most of its money from the initial purchase transaction and not from the long term  storage.

How does that benefit all storage clients over the long term? If the storage operation is  storing $100 million in assets and most of it was from underpriced IRA accounts, at .12% a year,  the annual revenue may only be $120,000. This may be just enough money to pay 3 employees  and their health insurance, let alone a full all-risk insurance policy, security equipment and  services, lease, monthly building expenses, etc. At this point you may ask, how can I find this  information out? In most cases, ask the storage operation for a schedule of rates for regular and  IRA accounts or search for self-directed IRA custodians online and look at the rate schedules of  depositories listed. Everyone likes lower fees, however, at what point may that begin to add risk  and jeopardize the storage facility’s ability to meet its obligations and responsibilities.  

In the age of the internet, some facilities may have in their storage agreement that a  simple posting on their website may be all that is needed to make changes to the terms of the  storage contract. Rather than the facility communicating directly with you to alert you to any  changes, such provisions in the storage agreement would require that you check the facility’s  website regularly to try to decipher if any changes have been made. Also, some programs may  charge transaction fees for services that may be paid by deducting a portion of your metal from  your account rather than invoicing you for payment in cash. These a just a couple of additional  reasons why it is so important to actually read and understand a facility’s storage agreement.

This article was designed to shed some light on an industry that may be hard for  prospective clients to research. Please keep in mind, this article only scratches the surface of the  many risks and facts you should consider when choosing a storage facility or program for your  metal. I know the industry very well and have created a depository for clients that addresses these and many more issues. We at GoldSilverVault have been in the armored storage industry  for 10 years and understand that our business is to protect your interests, whether through  physical structure or intelligent guidance. Our goal is to provide you the proper information so  you can make the right decision the first time.  

Simply put, look for a storage facility that best represents your interests. In the end, that  is what matters the most.  


Bob Coleman



About Author

Bob Coleman has been in the Investment management industry since 1992 to provide intelligent research, consulting, and portfolio management services to high-net-worth investors and institutions.

Bob Coleman standing in front of gray background wearing a suit.

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