Gold prices are soaring and more investors are looking to the commodity as a hedge against an unpredictable stock market, inflation and an increasingly weak dollar; however, owning gold is only the first step in the investment. The next step is storing it and there are two basic options: self storage and paid storage. Self storage will require a secure location, insurance and the understanding that selling it will involve appraisal costs. Paid storage can be bought for a flat fee or a percentage of the gold’s value at a private firm or a bank. The important thing to remember is that storing gold at a bank can result in “unallocated storage,” meaning that the owner only owns paper rights to the gold, which then depends on the creditworthiness of the bank. For more on this continue reading the following article from The Street.
There’s no guarantee the precious yellow metal will keep rising in value, but one thing’s for sure — if Americans continue to believe the economy is floundering, gold will be in high demand.
“Gold bugs” flock to the metal because historically, it’s proven to be a good hedge against a weak dollar, high inflation and a recessionary (or worse) economy.
But if you buy gold, in some cases you’ll have to store it yourself. That’s the deal when you buy physical gold such as bullion, bars and coins. Some banks and private depositors will be glad to handle that task for you, or you can elect to keep it yourself, in a home safe or other (hopefully) secure location.
What’s your best option for storing gold? Here is what to expect from the two main choices:
Store it yourself.
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It’s a bit of a risk to store gold yourself, even in a safe in your home. Yes, you’ll save on gold storage fees, which have been rising lately as gold is in higher demand (banks and private storage outfits usually charge up to 1.5% of your gold’s value to store it for you, or a flat fee for basic storage boxes). But you’re also at a higher risk of theft, as most homes aren’t as secure as a Brinks or Bank of America(BAC) vault.
On the plus side, your gold will be easier to access at home, and if things really go downhill economically, having gold on hand should make it easier for owners to use it as currency (its “last resort” use) to buy food, fuel and water.
You can insure your self-storage of gold, but expect to pay sharply higher premiums than if you were storing gold at a bank or private security firm. You’ll also pay for shipping and handling, insurance for shipping and handling, and for appraisal costs when you try to sell the gold on your own to a reputable dealer.
Store gold with a bank or private firm.
At the ground-floor level, you can get away with paying $100 or $200 per year for a simple storage box. If you’re worried a safe deposit box isn’t secure enough, you can pay more for a private firm to lock it away in a more secure location, such as a bank vault or other hard-to-access location.
But banks and private security companies aren’t open 24 hours a day, so if there’s a big run on gold in overseas markets, or if you feel the need to close an after-hours deal right away, you can’t get access to your booty.
Also, note that banks don’t insure safe deposit boxes, so you’ll have to buy separate insurance on your own. The good news here is that it won’t be as pricey as an insurance policy covering gold stored in your own home.
There is a difference between storing gold with a bank or with a private company. With a private security firm, you own the gold — a system known as “allocated storage” — and retain legal title to the gold. But if you store with a bank — known as “unallocated storage” — you own only the paper value of the gold, making you in effect an unsecured creditor of the bank — and thus dependent on its creditworthiness.
Storing gold is serious business, and should be treated as such. Examine the facts, weigh your options, then act on the safest location that meets your gold storage needs.
This article was republished with permission from The Street.