Thanks to the recent stock market volatility, investors are increasingly turning to gold, which is traditionally a safe haven in troubled times. This article introduces Bullion Vault, a company that enables you to buy and securely store small amounts of the highest-grade gold, which the company claims offers unique advantages for small investors buying gold.
Why are investors buying gold?
Sales of gold via exchange traded instruments have soared recently, with funds that invest in gold mining shares such as Merrill Lynch’s Gold and General Investment Trust have produced returns of around 500% over the past five years.
In 1999 gold was trading at around $275 per ounce, which was when Gordon Brown, the UK’s then Chancellor of the Exchequer, decided to sell half the nation’s store, further depressing the price. Gold has since rallied very strongly. Having broken through the $900 per ounce mark in the past few months, it’s threatening to sail through $1,000 an ounce in 2008. (Thanks a bunch, Gordon!)
Fans of gold (so-called ‘gold bugs’) make the following case for investing in the yellow metal:
- As a real asset, gold is a hedge against inflation.
- Demand for physical gold is increasing, with new money from India and China said to be particularly keen on gold. (Indian farmers traditionally buy gold jewelry as a store of value.)
- Production difficulties are constraining supply. Power supply problems in South Africa are the current bugbear, but exhausted mines, political instability and environmental concerns perennially hamper production.
- Most gold in the world has probably already been mined.
- Even though gold has increased nearly four-fold in dollar terms since its lows in 1999, the previous high reached in 1980 would be around $2,000 today, adjusting for inflation.
- China and certain other central banks are now increasing their gold reserves.
- In a world of ‘paper’ or ‘fiat’ currencies, gold is the ultimate wealth preservation tool. The US can print all the paper money it wants, but it can’t conjure up gold.
There are also convincing arguments against gold
Apart from the recent steep and rapid increase in price – enough to give any investor reason to worry about an imminent and equally sharp correction downwards – it must always be remembered that gold is literally pretty useless stuff.
Jewelry aside, you can’t do much with gold, unlike platinum (a key element in catalytic converters) or silver (which is used in all kinds of chemical and industrial processes). Some pundits even call gold the ‘barbarous relic’.
Gold isn’t an investment that will give you an income. Instead, you’ll have to hope its price goes up over time. As ever, you’ll need to make up your own mind on the likelihood of this.
Why consider buying allocated gold with BullionVault?
Bullion Vault offers you a way to directly own gold, without you needing to hide gold krugerrands under your mattress. Most other methods of investing in gold, from Exchange Traded Commodities to investing in unit trusts – only give you a proxy to the gold price.
What’s more, Bullion Vault’s gold is all in the form of ‘assayed’ good delivery bars – guaranteed to be of 99.5% pure quality – and because the gold never leaves the storage facilities, it doesn’t have to be re-evaluated by the small community of gold specialists, which saves money on an expensive procedure.
The company, which was founded in 2005 by City veteran Paul Tustain, says it now has 35,000 clients around the world, who together hold 5.6 tonnes of gold worth some $190 million.
Bullion Vault’s storage facilities are located in London, New York and Zurich. If you’re one of the paranoid tinfoil hat brigade who fear utter economic breakdown in Britain, you can therefore buy gold stored in Switzerland, where civilisation would surely proceed in a clockwork fashion even after The Apocalypse.
Civilisation would surely proceed in a clockwork fashion in Switzerland even after The Apocalypse
Owning gold can be useful in less extreme circumstances, too. Middle-class Argentinians found their wealth on the international stage decimated when their currency collapsed in 2001. The few with gold off-shore were thus relatively many times richer when the Argentinian government introduced restrictions on the movement of currency outside of their country.
The up-front cost of buying gold at Bullion Vault is around 1%. There is also a minimum storage fee of $4 a month for up to $40,000 of gold, so it can be expensive if you only plan to invest a few thousand dollars. (Get used to dollars if you invest in gold, as the whole market is greenback-denominated). There may be other costs depending on how you choose to dispose of your gold.
In summary, Bullion Vault gold:
- Is of the purest quality.
- Is kept secure in underground vaults.
- Is retained as a gold delivery bar, and thus is very closely matched to the quoted gold spot price.
- Is tradeable in the 24-hour global gold market.
- Offers direct ‘allocated’ ownership of gold, in contrast to unallocated gold sold and held by a bank.
What can you do with your Bullion Vault gold?
Nothing except sell it. It’s stored gold. You literally take ownership of a portion of it when you buy, and should you sell you’re taken off the register and paid in cash. Don’t expect to get your gold bar out for special occasions to impress your mates! Bullion Vault’s gold never leaves the professional vaulting circuit. (The advantage here is that even if you decide to sell yours on the open market, it will be known to be pure.)
Is it hard to open an account?
The company says it will take an hour or so to get started. Naturally it has to provide checks against money-launderers and other shady types moving vast amounts of money around the world. For security you need to buy the gold via bank transfer – no credit card transactions are allowed.
On the upside, you get $26 of free gold when you open an account at Bullion Vault.
What are the disadvantages of this method of buying gold?
Even if you’re keen on gold as an investment, this may not be the right method for you to get exposure. Some of the downsides to buying gold with BullionVault include:
- The alternative method of buying a gold ETC or ETF only takes about 20 seconds using your normal share dealing account, and can be sold just as quickly.
- Spread betting on the price of gold may be cheaper still if you’re only looking for a short-term punt.
- Buying a gold fund or directly investing in smallcap gold miners may produce greater returns, since producers benefit as the gold price rises due to their improving margins. (Equally, you could lose more money if the price falls).
- So-called ‘e-gold’ enables you to buy goods with your gold exposure. Allocated gold at BullionVault is an investment, pure and simple.
None of these methods give you direct ownership of gold, however.
What next?
You can learn more about gold at the World Gold Council. To explore the idea of buying allocated gold at Bullion Vault further, read all the information on the BullionVault site, and do seek advice from a professional financial adviser as required.
Please note: Monevator receives a commission should you buy after following the links in this page to Bullion Vault, but the cost to you on investing or thereafter is not higher because of this – the fee is paid by the company.
Comments on this entry are closed.
Useful article… but I wish I’d been buying Gordon’s gold in 1999. That would be a nice asset price increase! Handsomely beating the stock market! Who said commodities didn’t do well on occasion!
I used Bullion Vault for several months. There were several problems that made me get out:
1. Lack of Liquidity
It took *two days* to sell almost 1.5kg of gold on London vault using sterling, even though the price I wanted was below real market value. Contrast this to using ETFs etc where there is no lack of liquidity and you can buy and sell immediately at ‘actual’ gold prices.
2. You can only fund your account and make withdrawals in one currency. I funded my account in sterling and at one point sold gold for euros because I preferred to hold cash in euros. But I then found I couldn’t use all those euros to buy gold because Bullion Vault withhold an extra 1% of the value of any purchase for commission even though, later, they only use 0.8%. So you are left with a few euros in your account and you cannot withdraw them.
3. I think their advertising may be a little misleading in claiming so many clients. When you sign up, even though you have not funded your account and may never do so, they give you a gram of gold free and then claim you’re a customer!
4. The gold prices are often quite out of line with ‘real’ gold prices.
5. Also, I think they get a lot of business because of irrational hysteria about countries forcing their citizens to give up their gold holdings. If countries were to do that, they would also find a way to get at the gold held in Bullion Vault’s vaults. Bullion Vault offers no more security than ETFs backed with physical gold.
You claim that Bullion Vault gold “Is tradeable in the 24-hour global gold market.” This is absolute nonsense. Bullion Vault gold is tradable only in the very small Bullion Vault community. This is the very problem of liquidity which I mentioned above.
I’ve switched to using ETFs. I use 4GLD (Xetra-Frankfurt) [where the firm bid-offer prices in euros are for 1gm of gold], but there are many gold ETFs available, and at fees that are certainly no worse than Bullion Vault’s.
Hi Laurence
Thanks for your feedback.
Interesting to hear the global gold market claim is apparently ‘nonsense’ -> I took it from the company’s own material.
As I hope the article makes clear, I’ve not used the service myself but having seen it written up in the FT and elsewhere I thought it worth bringing to everyone’s attention. As I conclude, definitely one to investigate a lot more closely before going in.
Regarding gold ETCs, I they’re certainly going to be useful in terms of capturing the spot price rise, but they’re not of any use to the baked-beans and shotguns brigade.
In a world where fiat currencies collapse, will ETFs really still retain their value? Look at how the market was affected by the collapse of investment bank backers earlier this year.
best
Hi Laurence,
Thanks so much for your feedback. I just became a client of Bullionvault and today I had a HUGE panic as they are refusing to validate my account, saying that the routing number is not correct! And if they don’t have a valid routing number, they won’t be able to redeposit my funds in my account. Surely, they should recognize a routing number from the States by now and surely, they should be able to see that it is clearly printed on my deposit slip!!
So, I just started to think that they are just one big scam. The other thing is that I never did receive monthly statements as they said they sent. I have received nothing. I will call them tomorrow to see what they say and try and liquidate ASAP.
Do you think they will actually continue to refuse to recognize my routing number or are the employees merely incompetent? I would love your further feedback as I am quite frankly, worried now.
The bizarre thing is that before I invested with them, I googled and googled to see if there was any negative feedback and found NONE. How can this be?
Also, I am an American client…maybe they can be more dishonest with us and get away with it?!
jomlette
Hi Jomlette,
Sorry to hear about your problems — I know how scary it can be when money doesn’t show up where you expect it!
I’ve never heard it suggested that Bullion Vault are a scam, though as I mentioned above I’ve never used the service and it’s a case of buyer beware, as with everything on this blog / the internet.
They are regularly featured in the UK media and claim to have more gold deposits than many central banks etc. Respectable newspapers such as the FT quote their research etc.
I do hope you sort out your issue with them soon. Please let us know how you get on.
Okay, so the misunderstanding of the routing number was rectified today and not dishonesty on their part at all, and I am seeing if the redeposit works. I will keep you posted. I do agree though with Laurence that “The gold prices are often quite out of line with ‘real’ gold prices.” And I noticed that I lost what I think is quite a bit in the transfer. Sorry I am not being more exact but I didn’t have time to work out the percentage. I just am not convinced that their fees are so much lower than others.
More later if my money turns up in my account! I will retract what I said about it perhaps being a scam…it would just not be the service for me.
Thanks for the update jomlette.
Thanks for your views. I have always found gold as an out-and-out goalscorer. It’s kind of remedial in the times when stocks don’t pay us that well. Though, I have never tried Bullion Vault, but would like to give it a try.
The only issue i’m having with Bullion Vault is that you cannot neatly wrap your purchases in an ISA and for a fairly newcomer having the assets of a portfolio scattered around and some that are in an ISA and others that are not i.e. Bullion Vault, can be difficult on the admin side. As far as i’m aware i cannot even include it in my portfolio on morning star as a commodity and just allocate the transactions for it, so i’me managing it within a spreadsheet.
On another note i did contact BV yesterday and they did say it was available for some SIPP providers, here they are:
European Pension Management Limited http://www.epml.co.uk/sipp
Mattioli Woods http://www.mattioli-woods.com/services/sipp.php
Pointon York http://www.pointonyork.co.uk/
Dentons Pensions Management Limited http://www.dentonspensions.co.uk/
Hornbuckle Mitchell http://www.hornbuckle.co.uk/SIPP.aspx
Barnett Waddingham http://www.barnett-waddingham.co.uk/ssas-and-sipp
MW Pensions http://www.mwpensions.co.uk/
Westerby http://www.sipp-ssas-pensions.co.uk/westerby-trustee-services
Killik & Co http://www.killik.com/services-and-products/products/sipps/executive-sipp/
@emanon — Interesting links, thanks, and worth raising that point about ISAs and SIPPs.
My attitude towards gold has not yet ever been serious enough that I’d considered the tax position. And to be honest I’ve always assumed it’d be held as some sort of emergency stabilizer rather than anything that was likely to be realized much beyond a token amount. (I guess in extremis in a decade or two I might have enough that I could sell it down in a bad year in the market for rebalancing, but that is a long way from my tiny position today!)
I wouldn’t let what I can enter in Morningstar determine where I invested, that’s for sure. You don’t have to measure these things precisely. If you decide that you ought to hold “about 5%” say in gold, then roughly eyeballing the figures should do well enough. It doesn’t really matter if it’s 4.95% or 5.03%.
I monitor my entire net worth in a spreadsheet anyway, pulling live data off the Web. I wouldn’t have it any other way! 🙂
When buying with BullionVault as opposed to a ETF like PHAG/PHAU what happens with regards to compounding. I assume buying thorugh bullionvault is much more simple i.e. you buy at one price, it goes up/down, you sell and take your gains/losses, nothing is reinvested, whereas with an ETF any gain can be reinvested and compounded? Is this a correct assumption and something that should be strongly taken into account?
No, you’re getting confused. An etf tracks the price of gold, after deducting costs. There’s no income with either it it BullionVault. The compounding in both cases is (hopefully) the price going up every year. ETFs are far easier to buy and sell, with the drawback of not being physical ownership. Pays yer money, takes yer choice! 🙂
It seems to me that unless there is a huge amount of risk in the ETFs (PHAU/PHAG) that track the price of Gold, it’s wiser to stick with these as bullion vault is not wrapped in an ISA so there will be CGT and when your time horizon is 25 years that loss in CGT adds up… Unless I’m missing something?
Spandau Ballet should automatically play when you click the link to read this article. Apart from that, very good!