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#1 2014-07-30 21:00:24

Bullion Baron
Silver Stacker
From: Adelaide
Registered: 2009-09-14
Posts: 7,240
Trades :   139 
Website

Bullion Baron: How Safe Are Unallocated Bullion Accounts?

61_bullion_baron_header_ss.gif

Imagine you owned a small business. It's a retail store and you sell a physical product which lines the shelves. You need to keep a variety of different products to ensure that customers who enter your store have plenty of choice. Not only do you have to stock a range of goods, but you have to keep a lot of each on hand as customers often purchase in bulk, due to fluctuating prices (they may buy large quantities when they believe it is well priced). As the store owner you have to hedge your exposure to the fluctuating price of the product you keep on hand to reduce the chance of getting caught on the wrong side of a price swing, this adds further complexity to managing your inventory.

The products you sell are expensive, this is no $2 store where your entire inventory only totals a few thousand dollars, almost all of your products cost over $20 each and up to $44,000 or more, remembering that you have to keep multiple of each in stock for those customers who want to purchase in bulk. The worst of it is you can only charge a small mark-up on the products (over cost price), otherwise your customers will go elsewhere. Obviously the capital you need for running this store will be substantial. Likely to be in the millions of dollars.

Now imagine there was a way to offer such a wide selection of expensive products, but have your customers fund the capital costs to do so… sounds too good to be true?! They will essentially pre-purchase your stock (allowing them to lock in the price they want), which provides substantial capital for putting product on your shelves. The customer can come in and use their store credit to make a purchase from your product range and take delivery at a time of their choosing. All you have to do as the store owner is promise your customers that you won't take more funds from them than you have product on your shelves.

…you've probably worked out by now that I'm talking about... Read More

CONTINUED: How Safe Are Unallocated Bullion Accounts?

There is some interesting information in the full article linked above detailing the collapse of two bullion dealers, one in Australia and one in New Zealand... well worth a read to see what happened to clients who held unallocated metal...

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#2 2014-07-30 21:45:00

Jislizard
Silver Stacker
From: Australia
Registered: 2011-04-07
Posts: 7,348
Trades :   56 

Re: Bullion Baron: How Safe Are Unallocated Bullion Accounts?

Nice article, pretty much the same thought processes I went through before I signed up for an unallocated account.

The thing that made up my mind...

I have been sitting on my own stash of silver for a few years now, the price goes up and down but even when it was up I didn't sell any of it so now at the current time I am in the red.  Other people who have been buying and selling are actually making money, they still have about the same volume. 

Owning silver doesn't make you money, trading does.

If I was just going to sit on the silver I would probably not risk the unallocated and instead decide whether I trusted an allocated account with a bullion dealer or a box in a bank, both parties seem to be falling like ninepins around the world.

In the end I decided to put my SMSF into unallocated, I figured it wasn't really my money anyway, the chances of ever seeing it again are slim, between government meddling and financial disasters I don't think the risk is any higher than the difference between unallocated and allocated or storing it at home. 

With the unallocated I am more confident in buying and selling because the costs associated with physical metals are not present and transactions can be done instantaneously, without numerous emails and trips to the post office. I have already done one GSR swap and it was a lot easier than the one I did with physical.

As it is unallocated I am not buying and selling silver as such, just selling it back to the bullion dealer, however I have saved money by buying the unallocated and then selling it back to the dealer.  You get the same money for selling back unallocated as you do for minted products, without having to pay for the premiums on minted products.  As long as you never need to take posession of the silver you can avoid the additional expenses.

Whether or not I would be better off just trading paper silver I don't know.


Now stacking: World Junk Silver Coins.
Swap your older, worn, dirty fractional silver coins for fiat, .999 rounds or legal tender. 
Individual coins, mixed lots or bulk. 
Not looking for Australian, bent, holed or damaged coins, thanks!

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#3 2014-07-30 22:10:59

Bullion Baron
Silver Stacker
From: Adelaide
Registered: 2009-09-14
Posts: 7,240
Trades :   139 
Website

Re: Bullion Baron: How Safe Are Unallocated Bullion Accounts?

Some fair points there Jislizard.

Jislizard wrote:

With the unallocated I am more confident in buying and selling because the costs associated with physical metals are not present and transactions can be done instantaneously, without numerous emails and trips to the post office. I have already done one GSR swap and it was a lot easier than the one I did with physical.

Have you compared the costs (spread, etc) of unallocated against ETPMAG which trades on the ASX (and is also backed by physical silver)?

http://www.etfsecurities.com/institutio … etpmag-asx

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#4 2014-07-30 22:16:06

Jislizard
Silver Stacker
From: Australia
Registered: 2011-04-07
Posts: 7,348
Trades :   56 

Re: Bullion Baron: How Safe Are Unallocated Bullion Accounts?

Bullion Baron wrote:

Some fair points there Jislizard.

Jislizard wrote:

With the unallocated I am more confident in buying and selling because the costs associated with physical metals are not present and transactions can be done instantaneously, without numerous emails and trips to the post office. I have already done one GSR swap and it was a lot easier than the one I did with physical.

Have you compared the costs (spread, etc) of unallocated against ETPMAG which trades on the ASX (and is also backed by physical silver)?

http://www.etfsecurities.com/institutio … etpmag-asx

No, Shares and that sort of thing are like black magic to me, I don't know of anyone who is rich through shares but I know quite a few in my close family who have lost a lot of money.  Granted none of them where traders but then neither am I.

Edit to add: I am still transitioning from the "If you don't hold it you don't own it" camp so unallocated was a fairly big step to take but on balance it seemed the right move regarding cost, security, ease of transactions, insurance etc.  Still not ready to trust a piece of paper.

Last edited by Jislizard (2014-07-30 22:18:44)


Now stacking: World Junk Silver Coins.
Swap your older, worn, dirty fractional silver coins for fiat, .999 rounds or legal tender. 
Individual coins, mixed lots or bulk. 
Not looking for Australian, bent, holed or damaged coins, thanks!

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#5 2014-08-01 15:26:21

Pirocco
Member
From: EUSSR
Registered: 2011-05-24
Posts: 4,803
Trades :   
Website

Re: Bullion Baron: How Safe Are Unallocated Bullion Accounts?

Isn't this alike a 'private' and over the counter version of the basic concept of a futures market?
In the end, one HAS to berry the risk, and the futures market is a way to offload that risk (but by also giving away potential gains) by the price mechanism itself (forward/cash prices). In other words: the presence of the hedge inflicts the counterparties a higher or lower (depending on counterparties' buy or sell incentive, ie direction of the risk) price.

Jislizard, basically that red started with paying too much in the beginning or on average, not by not trading it. Trading it can correct it, but it will just shift the red elsewhere in the market. And it can also worsen it instead, if the decisions are as bad as the first one that brought the first red. So while it's true what you say, it's a story that is part of a bigger story, and can be rendered wrong on that bigger level. Of course, post mortem tends to be a too late, so the chance is eh lower.


Silver won't save you if you act as clueless and careless as with your bank account.
Get in- not disinformed. Last is easiest, visit www.zerohedge.com & Co and hurry to their bullion shops.
Futures: http://forums.silverstackers.com/topic- … ilver.html #9
Central Banks inflict you less gold and fiat: http://forums.silverstackers.com/topic- … tners.html #19

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#6 2014-08-01 22:14:43

Bullion Baron
Silver Stacker
From: Adelaide
Registered: 2009-09-14
Posts: 7,240
Trades :   139 
Website

Re: Bullion Baron: How Safe Are Unallocated Bullion Accounts?

Pirocco wrote:

Isn't this alike a 'private' and over the counter version of the basic concept of a futures market?

I don't think it's anything like a futures market.

Most bullion dealers are marketing their products as fully backed and unleveraged. Not for potential delivery of titled metal in the future, but that you have already purchased some metal that is sitting in the dealers vaults (just in various forms).

The risk is that you may not be told the truth (i.e. outright fraud) and even when they are completely honest, the structure of ownership is critical in the case something happens to the dealer holding "your" metal.

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#7 2014-08-02 07:21:59

Bit Baron
Member
From: Australia
Registered: 2013-05-14
Posts: 70
Trades :   

Re: Bullion Baron: How Safe Are Unallocated Bullion Accounts?

Enjoyed reading the article.

Personally, unallocated bullion makes sense as there is no storage costs and it's easy to buy and sell without needing to worry about delivery costs. These conveniences do present a certain degree of risk.

What are the auditing requirements for companies that sell unallocated bullion?

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#8 2014-08-02 22:05:10

Bullion Baron
Silver Stacker
From: Adelaide
Registered: 2009-09-14
Posts: 7,240
Trades :   139 
Website

Re: Bullion Baron: How Safe Are Unallocated Bullion Accounts?

Bit Baron wrote:

What are the auditing requirements for companies that sell unallocated bullion?

Not aware of any legal requirements that relate specifically to auditing unallocated metal. The Perth Mint includes information in their product information packs about the process:

For Unallocated or Pool Allocated holders, the fact that there is no specific bar or coin recorded against individual clients and the metal backing their account is pooled, it is not possible for a client to audit these types of holdings. Pool Allocated and Unallocated in investors rely on the Mint's audited Annual Reports, which are signed off by the Auditor General of Western Australia that they comply with the Financial Management Act 2006 and the Gold Corporation Act 1987. The reports are available online at http://www.perthmint.com.au/about_us_th … ports.aspx

http://www.perthmint.com.au//documents/PMDP_PIS.pdf

But no bullion dealers offering unallocated accounts have information this detailed on their site as far as I've seen.

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#9 2014-08-02 23:51:14

screaming eagle
Silver Stacker
From: Sydney
Registered: 2014-01-05
Posts: 418
Trades :   62 

Re: Bullion Baron: How Safe Are Unallocated Bullion Accounts?

Bit Baron wrote:

Enjoyed reading the article.

Personally, unallocated bullion makes sense as there is no storage costs and it's easy to buy and sell without needing to worry about delivery costs. These conveniences do present a certain degree of risk.

What are the auditing requirements for companies that sell unallocated bullion?

There wouldn't be any reporting requirements outside of the normal AUSTRAC obligations. It's simply a an OTC product that the buyer must do their own due diligence on. Certainly no specific audit requirements to match certain bars (or portions thereof) with clients, unless it's in the individual product literature and this is policed by the company offering the product.

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#10 2014-08-03 20:25:57

Slam
Silver Stacker
From: Au
Registered: 2010-09-27
Posts: 1,313

Re: Bullion Baron: How Safe Are Unallocated Bullion Accounts?

Bullion Baron wrote:

The risk is that you may not be told the truth (i.e. outright fraud) and even when they are completely honest, the structure of ownership is critical in the case something happens to the dealer holding "your" metal.

This is not to say all bullion dealers are dishonest. But have a think about recently where a home wares department store closes down. Just look at the issues that came about them closing down.

The voluntary administrators have come in and are in charge:

- People with deposits to goods cannot get access to goods, even if they are willing to pay off their balance.
- People with gift cards are not able to exercise the right to purchase from the store.
- People that have fully paid off goods, but have not taken delivery are not able to take their goods.

I believe they ended up as creditors on the list, probably towards the bottom. At the end of the day, what does this highlight. Even purchasing anything with a deposit is a risk these days with any company if you don't take immediate delivery.

Having said that if I was to buy unallocated it would probably be with the Perth Mint. However Bron has mentioned that Silver Unallocated has been closed and gold Unallocated is still available at the moment. The reason I see is that they are tying up their offering to the capacity of the production chain of the mint. This is most likely the case and probably fairest as it means they only sell what they can deliver. They are not over selling what they might not be able to produce.

Anyway, DYOR, invest what you can afford to write off for unallocated.

Slam


By failing to prepare, you are preparing to fail.

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#11 2014-08-04 05:16:41

bron suchecki
Silver Stacker
From: Perth, Western Australia
Registered: 2009-07-09
Posts: 1,311
Website

Re: Bullion Baron: How Safe Are Unallocated Bullion Accounts?

"most likely the case" - that is actually the case, we only need so much metal in the refinery and mint to run the business, which is the only way you can make it free AND 100% backed. Once we get enough in we have to close it.

I have avoided commenting on this topic as don't want to be seen as marketing. Key is to check the wording of any agreement you sign - what are they promising to do - and how do you check they are doing it (eg audit reports etc).


Disclosure: I work for the Perth Mint. What I say is done in a personal capacity and is not endorsed by the Mint.

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#12 2014-08-04 06:13:07

Aurora et luna
Verified
From: Sydney
Registered: 2009-07-01
Posts: 5,254
Trades :   620 
Website

Re: Bullion Baron: How Safe Are Unallocated Bullion Accounts?

The Gold and Silver Saving Plans run by FirstGold might be of interest to Sydney members. It's a family owned business managed by really nice people.       
You buy gold on a regular basis and once your gold account tops 1oz , they actually allocate a 1oz ABC or Pamp bar to your account.
You have the option of going into their office to pick up the 1oz gold bar or continue to let them store it for you free of charge.
Buy/Sell fees are a flat 4% above spot and there is no additional fees for fabrication.
Btw I have seen the actual gold and silver bars that's backing the accounts of their customers and its pretty impressive. smile

https://firstgold.com.au/

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#13 2015-09-25 01:23:02

silversearcher
Silver Stacker
From: Australia
Registered: 2012-11-06
Posts: 681
Trades :   11 

Re: Bullion Baron: How Safe Are Unallocated Bullion Accounts?

I've been enjoying your threads and the insight shared. I liked the shop analogy also ( I love analogies )...A have a question. In times of silver shortages and low dealership stocks wouldn't unallocated be high risk ? For example - If I walked in today and put in $300,000 into unallocated  silver holdings at $21.50 that means it would need to be backed by equivalent in physical. If the spot price suddenly jumped up in a week or overnight $4, wouldn't the dealer be exposed during this time of low inventory and silver shortages if I and others decided to suddenly race in and cash out ?

Cheers

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#14 2015-09-25 02:02:22

Bullion Baron
Silver Stacker
From: Adelaide
Registered: 2009-09-14
Posts: 7,240
Trades :   139 
Website

Re: Bullion Baron: How Safe Are Unallocated Bullion Accounts?

silversearcher wrote:

I've been enjoying your threads and the insight shared. I liked the shop analogy also ( I love analogies )...A have a question. In times of silver shortages and low dealership stocks wouldn't unallocated be high risk ? For example - If I walked in today and put in $300,000 into unallocated  silver holdings at $21.50 that means it would need to be backed by equivalent in physical. If the spot price suddenly jumped up in a week or overnight $4, wouldn't the dealer be exposed during this time of low inventory and silver shortages if I and others decided to suddenly race in and cash out ?

No two unallocated products are exactly the same so there is no easy way to answer your question.

You would hope that a bullion dealer/unallocated provider stops taking orders once the total pool reaches whatever physical they have in hand (so remains 100% backed by physical they have already). This is how Perth Mint runs their unallocated.

In the worst case scenario they have barely any of the metal and collapse in a heap screwing over unallocated account holders: http://about.ag/BullionDirect.htm

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#15 2015-09-25 02:20:12

Monsta
Member
From: Sydney AU
Registered: 2015-09-24
Posts: 339
Trades :   

Re: Bullion Baron: How Safe Are Unallocated Bullion Accounts?

I think unallocated is fine, especially if trying to accumulate up to a larger amount/purchase to lessen the premiums we are paying on smaller sizes at the moment, especially in silver. It's a product you can use as a tool to enable flexibility and also to minimise premium.

Silver is less of an issue at today's prices, but smaller than 10-ounce silver the premiums are eye-wateringly high. 1/20 and 1/10 gold coin fractionals are the same.

Products like the FirstGold savings-to-metal above (great link, thanks Aurora!) or using your preferred dealer in unallocated to build up a balance and then cash it out is a great way of getting larger units of PM without having to save up for it.

I would of course never recommend it for long-term holdings or for anything more than say around 10% of your total holdings, and certainly not at a 'just starting out' phase. But for those with say a couple of tubes worth of silver rounds they have accumulated, putting their $60/week into unallocated instead of a couple of ASEs or 'Roos will soon have enough to withdraw a couple of 10 ounce minted bars.


Opinions expressed are my own, correct, and generally unpopular with others. All rights reserved, some wrongs still available.
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Currently Stacking: Silver kilobars via allocated as the prices drop.

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