IN THE NEWS

Readers of Bron’s Response To Miles Franklin will definitely be interested in this illuminating new interview.

From FinancialSurvivalNetwork.com

“Bron Suchecki, director of strategy at the Perth Mint joined us today to clarify a number of rumors and misunderstandings about the Mint’s policies and accounting. Perth sells certificates that are backed up by the metal they have in inventory, awaiting fabrication. Buyers of the certificates are not charged for storage. This practice has led a number of reputable writers to question whether Perth really does have the metal and perhaps more importantly, what would happen if a shortage of metal prevented them from restocking their inventory. Bron explains that they never actually ran out of metal in 2008. They tapped other sources to keep the metal flowing, and if they were ever in a position where suddenly gold and silver became unobtainable, they would be forced to stop producing and keep the inventory in place. Additionally, Perth’s auditors have certified their financial statements, never qualifying them due to an inventory shortage. While there are no sure things in this world, especially where counterparty risk exists, Perth is probably as close as one can get to minimization of this risk.”

Click here to download the audio

WHAT OTHERS ARE THINKING

Dublin-based GoldCore recently fielded questions from investors regarding the nature of "paper gold". Some readers sought clarification as to whether Perth Mint Certificates are paper gold.

The following explanation is reposted from GoldCore blog:

“By paper gold, we do not mean Perth Mint Certificates. Perth Mint Certificates are fully backed by physical gold, silver, and platinum bullion.

By paper gold we mean gold futures, gold futures options, some gold ETFs, certain forms of unallocated gold ownership, pool accounts, contracts for difference (CFDs), spread betting contracts, gold stocks and or gold options.

Perth Mint Certificates are unlike many ways of investing or speculating in gold which are not fully backed by physical metal.
 
Another distinction is that the gold and silver bullion backing Perth Mint Certificates is not held in the banking system. Rather the Perth Mint Certificate Programme is owned and operated by The Perth Mint of Western Australia which is a AAA rated government mint.
 
The Perth Mint is owned by the Government of Western Australia and is run within very strict and ethical guidelines. The Perth Mint does not and would not contravene the law and act in a manner which would embarrass its government owner. Indeed because it is government owned it has to be absolutely scrupulous in adhering to strict business procedures.
 
For every ounce of precious metal that is sold to a client, The Perth Mint must buy a corresponding ounce in the marketplace.
 
To ensure that this policy is maintained at all times, The Perth Mint is audited rigorously by the Auditor General of Western Australia as well as by external auditors Price Waterhouse Coopers.
 
The Perth Mint holds full inventory confirmations on a quarterly basis as well as the comprehensive audits. The Perth Mint Depository programs are not permitted to, and do not, run short positions under any circumstances The Perth Mint does not lease metal out to mining or exploration companies and does not undertake precious metal derivative transactions.
 
Conclusion
 
GoldCore shares concerns about pool and unallocated accounts where it cannot be established if the operator is backing its liabilities to investors. GoldCore would advise investors to research and question any program or facility they are investing in.
 
Via Mat and the Perth Mint Certificate Programme remain two of the world's safest and securest ways of owning gold and silver offshore.

Some bullion buyers prefer private storage, others public.
 
Some bullion buyers prefer storing bullion in Via Mat London or Zurich, others Perth in Australia.
 
Due to the significant geopolitical, macroeconomic, monetary and systemic risks of today, GoldCore also strongly advise that it should not be a question of either safe third party ownership or personal possession. Both are important and complementary and both should be considered by all prudent investors and savers.

If you are not fully confident and satisfied with any of your current forms of gold ownership, the ultimate holding is outright ownership.”

IN THE NEWS

Precious metal storage at The Perth Mint is designed for investors who want to buy our bullion coins and bars but don’t want the hassle of taking delivery and storing it themselves.

In this interview with the Financial Survival Network in the US, Manager Analysis and Strategy Bron Suchecki explains how the storage program developed in the 1980s and 1990s and clearly defines key concepts such as ‘allocated’, ‘pool allocated’ and ‘unallocated’.

Bron is upfront in answering one of the most common questions we hear from prospective unallocated storage clients: “What happens if everyone turns up to the Mint and wants to take their gold?”

Listen to his candid conversation with Kerry Lutz now.

EDUCATION

The Perth Mint has long advocated a staged approach to storing precious metals:

1. While the world environment is benign, hold unallocated, saving on ongoing storage costs and fabrication charges.
2. When the world environment becomes uncertain and risky, convert to allocated if you personally are concerned.
3. When the world is at a crisis point, take delivery.

This approach can save significant amounts of money as it may be some time between stage 1 and 2. Clients who do not feel they can judge the shift from stage 1 to 2, or feel it may be sudden and unpredictable, opt for allocated as they are using precious metals as "insurance" and see the storage fees as the cost of that insurance.

Changes in the percentage of metal held in allocated form can therefore indicate a change in clients’ perception of uncertainty and risk – a “fear index”. The chart below graphs that percentage since mid-1999, when the gold price bottomed. The percentage includes gold, silver and platinum together to give an aggregate view.



The declining percentage up to 2008 reflects clients opting to put more dollars into unallocated storage over allocated. It should come as no surprise to see the percentage start to increase in 2008 as the global financial crisis took hold. Recently, the percentage has stabilised around 15%, but we would not be surprised to see it rise.

In respect of stage three – taking delivery – this has always been insignificant and we haven’t seen any change in collection rates, indicating that while we are seeing a shift to allocated, our clients are “alert, but not alarmed” (to borrow the catchphrase from the Australian Government advertising campaign).

It is worth noting that in mid-1999 Depository only held $100 million worth of metal (valued at today’s dollars) compared to $3.5 billion today, which is a fear index in itself.

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EDUCATION

There is a great deal of misunderstanding about The Perth Mint Depository’s unallocated storage. This recent comment on a forum sums up the confusion:

“all their bullion is owned by people who have it in their depository... still trying to figure out how they can sell bullion that belongs to others.”

The Perth Mint website defines unallocated storage thus: “With unallocated storage… clients purchase an interest in a pool of precious metal held by The Perth Mint. The Mint purchases an ounce of precious metal from the spot market for every unallocated ounce it sells to clients. Accordingly every unallocated ounce is 100% backed.”

To clarify this further, I have come up with the following analogy in an effort to minimize continued misunderstanding.

A water utility pumps water from a dam and through a lot of pipes supplies it to your house where you drink it. As water is coming out at one end, it is continuously being pumped in at the other end, so the pipes are always “full”. Therefore, it is possible to measure and calculate how many litres or gallons of water are in the pipes at all times.

Because the water is constantly flowing through the pipes, it is not possible to specifically identify the individual water molecules in the pipes as they are changing from one day to the next. Contrast it with talking about water in a bottle. The individual water molecules in the bottle today will still be in the bottle tomorrow.

The Perth Mint’s unallocated storage can be best explained by saying that we are selling you the water in the pipes. Allocated is like selling you water in a bottle. It might make more sense to make the following substitutions in the text above:

Water utility = Perth Mint
Pumps = acquires
Water = precious metals
Dam = miner
Pipes = operations
Drink = store

With a few minor amendments to the phrasing, it would read like this:
 
The Perth Mint acquires precious metals from a miner and through a lot of operations supplies it to your house where you store it. As precious metal is coming out at one end, it is continuously being acquired in at the other end, so the operations are always “full”. Therefore, it is possible to measure and calculate how many ounces of precious metals are in the operations at all times.

Because the precious metal is continuously flowing through the operations, it is not possible to specifically identify individual precious metal molecules in the operations as they are changing from one day to the next. Contrast it with talking about precious metal in a bottle. The individual precious metal molecules in the bottle today will still be in the bottle tomorrow.

The confusion by the commenter I quoted above is that he is thinking of the Mint’s unallocated storage in terms of static, specific bits of precious metals in our operations. So when we sell a coin, he thinks of it as us selling a bit of precious metal that belongs to Depository clients.

It is more accurate to think of the Mint’s unallocated storage not as STATIC blob of precious metal, but as a FLOW of precious metal.

We use the word “unallocated” because we can’t point to specific molecules of precious metals in our operations and say they belong to our clients – they are always “flowing”. Allocated is different because we pick out (allocate) specific precious metals from the flow and put it aside on a shelf.

Even though unallocated “flows”, because we immediately buy precious metal to replace what we sell, clients can be reassured that the “pipes” are always full (in other words, 100% backed at all times).

Important note: many unallocated “programs” (particularly ones operated by banks) do not operate as I have described above. They may only store a fractional amount and lend out the rest. The Perth Mint does not do this.

 

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EDUCATION

A reminder that Bron Suchecki, Manager, Analysis and Strategy is conducting a free seminar for first time investors in precious metals at the ANDA Coin, Note & Stamp Show in Perth on the weekend.

Bron will present ‘Options for Bullion Investment’ - an information session on the variety of ways you can buy gold and silver including coins and bars, certificate programs, storage options and even via the Australian Stock Exchange.

The seminar starts at 11.00am on Saturday 5 and Sunday 6 February at the ANDA Show, which takes place at Burswood Convention Centre. (General Admission: $10 - 1 day. Special 2 day passes available at just $15).

Bron is happy to take questions – time permitting – representing a fantastic opportunity for Western Australian bullion buyers to discuss important issues. If you don’t live this side of the
continent, don’t forget that you can watch highlights of previous presentations by Bron on The Perth Mint’s YouTube bullion channel.

Other contributors to the free seminar program include Andrew Crellin, MD, Sterling & Currency; Steele Waterman, ANDA President and MD of Waterman’s Coins & Banknotes; Rob Jackman, MD, The Rare Coin Company; and Belinda Downie, MD, Coin Works. More info.

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