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This blog discusses The Perth Mint's bullion coins and bars, providing information about our latest designs, mintages, sales volumes and sell outs. On a broader front, we share relevant research and opinions for anyone interested in gold and silver bullion investing.

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Getting Paid In Fiat Rather Than Actual Gold

Topics [ unallocated depository services store silver allocated store gold ]

DEPOSITORY SERVICES

Following on from my previous post Don’t Mistake Perth Mint Certificates For Paper Gold I had the following question from a reader:

"If there is an event (why I would be buying precious metals as insurance for) that sky rockets the price of the metals what is the chance that I will be "paid" in fiat currencies rather than in the actual metals? Especially when the currencies are plummeting and the PMs are skyrocketing. If gold will be paid in paper isn't it paper gold?"

My response to his question is that unallocated with a bank who lends your metal out certainly has a risk in the scenario you raise. If the person they have lent the metal to defaults (most possible in a depreciating currency situation), then the bank is likely to only be paid a cash amount and not get any physical back. Such cash payments would be based on prices as at the date of default and thus would not result in the full amount of ounces being recovered in a situation of skyrocketing prices.

Even if the bank does not have any problems recalling their metal loans, they still have the problem of converting their paper gold into physical and then finding a refinery or mint to transform those 400oz wholesale gold bars into smaller bars and coins suitable for you.

Contrast that with The Perth Mint, who does not lend client metal. If the price of gold rises or falls it does not impact on our profitability as everything is one-to-one backed. Also, we are a business that deals in physical precious metals. If our clients want physical delivery it presents no problem to us because we operate a factory that produces $13 billion worth of coin and bars annually (compared to $2.3 billion worth of unallocated held with us) so we have the capability to transform metal into products.

It is likely that in the scenario of plummeting currencies there may not be many people willing to sell their precious metals for paper dollars. To maintain a one-to-one backing, The Perth Mint only sells bars and coins if it can immediately use the cash from that sale to buy replacement raw metal (usually from a mine). If we face a situation where we cannot obtain replacement metal, we will not sell. We will sit on our physical metal that backs your unallocated account until the market returns to normal. It is possible that precious metal transactions will be possible in another currency but not in others and we would only deal in those where a two-way buy and sell market for metal exists.

In the situation where clients want physical delivery, but we cannot find people willing to supply replacement precious metals, we would simply convert all the semi-finished metal into coins and bars and supply them to clients. Yes, we would be left with an empty factory, but without the ability to source replacement metal on an ongoing basis we do not have a business anyway.

The above issues do not apply to allocated, as the metal behind that has been manufactured and set aside. However, a scenario which does impact both unallocated and allocated is theft. If you look behind the insurance policies covering bank as well as non-bank storage providers, you will find three issues:

1. Insurance policies have a number of exclusions such as war, riots etc.

2. They rarely fully insure. Wholesale insurers will generally only cover around $1 billion per vault. If there is a loss greater than that, then you are relying on the company to make up the difference, and many do not have the balance sheet to cover significant losses.

3. If there is a loss which is below the insured limit, many companies would still not have the balance sheet/cash reserves to immediately buy metal to cover the loss and then wait until the insurer pays out – or take the risk that they will not pay out (eg due to employee fraud or collaboration). Even if the policy is paid out it is usually done at the value at time of loss and if metal prices are skyrocketing then the cash will not be sufficient to replace all the ounces.

In the case of The Perth Mint, clients have ultimate claim on the Government of Western Australia under section 22 of the Gold Corporation Act. This government guarantee has no exclusions or dollar limits. Secondly, The Perth Mint, via the Government, has the financial capability to immediate buy the replacement metal and then collect cash from its insurers later, so there is no exposure to skyrocketing prices. Thirdly, while The Perth Mint insures its precious metal inventories as a way of mitigating the risk to the Government, clients are not reliant on this as if the insurers do not pay out then government guarantee kicks in and the Government makes good on the loss (The Perth Mint having bought the replacement metal at time of the loss in any case).

In summary, the fact that The Perth Mint is a non-bank physical producer of precious metals with the additional protection from its Government ownership means that clients are unlikely to find another custodian with a lower risk profile.



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The Perth Mint Really Does Have The Metal

Topics [ unallocated depository services store silver allocated store bullion store gold ]

IN THE NEWS

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

From FinancialSurvivalNetwork.com

Bron Suckecki“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



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Perth Mint Certificates Are Not Classed As 'Paper Gold' - GoldCore

Topics [ depository services store silver store bullion certificates store gold ]

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.”


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The Land Down Under Could Be A Safe Place To Keep Your Gold - FSN

Topics [ unallocated depository services store silver allocated store bullion store gold ]

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.



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Perth Mint Depository Fear Index

Topics [ unallocated depository store silver allocated store gold ]

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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New ‘Pool Allocated’ Silver Storage To Replace Unallocated

Topics [ unallocated depository services store silver allocated silver bullion certificates ]

TREASURY VIEW

The Perth Mint is introducing a new product called Pool Allocated Silver for Depository and Certificate clients and making changes to Allocated storage fees.

The new product, which will be available from 1 May 2011, operates in a similar way to the current Unallocated silver storage option, which will be withdrawn on the same date. Pricing and other details for this and for Allocated storage fees  can be found at the end of this article.

With Unallocated silver storage, clients purchased an interest in a pool of silver used to support our refining and manufacturing businesses. We backed every investment by purchasing an equivalent amount of silver from the spot market.

The new Pool Allocated product will also be 100% backed, but by specific physical bars stored in The Perth Mint’s vaults. Clients will own a share of this pool of bars, although an individual’s holding will not relate to any specific bar.

Lists detailing the weights and numbers of these silver bars will be published daily, along with the total number of pooled bars held on behalf of clients on The Perth Mint corporate website.

We’re making the change from Unallocated to Pool Allocated because the amount of Unallocated silver we hold on behalf of clients now exceeds that required to support our business activities. We had targeted a certain amount of excess Unallocated “buffer stock” but rising insurance and other costs plus growing demand have accelerated our decision to close Unallocated.

One of the chief benefits of pooling silver bars is that it allows us to offer a low storage fee of 0.95% per annum. Pool Allocated clients will be able to convert their holdings into coins or bars for collection or to store with the Mint as Allocated.

From 1 May 2011, no new Unallocated silver accounts will be opened.  Existing Unallocated accounts will remain open and free of storage. However, clients will not be permitted to add to their unallocated balances and will only be able to sell or collect.

The Perth Mint cannot foresee reopening Unallocated silver for some time. This would only occur if we encountered significant and continued selling by existing Unallocated silver holders. We have primarily attracted buy-and-hold investors and we do not currently see, nor expect to see, any change in this regard.

At this stage Unallocated gold is not affected but it too will close at some point as gold demand also continues to be strong.

Revised Product Information Statements and Agreements will be available at http://www.perthmint.com.au/investment.aspx

Summary of pricing and other changes:

The fees below will apply to all clients, existing and new.

Trading Fees

Perth Mint Certificates are only sold through Approved Dealers, who each charge different trading fees. Clients should contact their Approved Dealer for their fees.

For direct Perth Mint Depository Program clients a 2% buy (entry) fee and 1% sell (exit) fee will apply to Australian & New Zealand clients with account balances under $50,000 AUD and International clients with accounts under $250,000 USD. No entry or exit fee applies to direct clients with account balances greater than those amounts.

Storage Fees – Allocated and Pool Allocated Holdings

Storage fees for both Allocated and Pool Allocated holdings will  be charged quarterly in advance, payable on 30 June and 31 December. There will be no refunds if selling during a quarter.

The percentage per annum rates below will apply based on the beginning of quarter market value of the metal. Existing Allocated clients have had fees based on their historical purchase value. As our insurance cost is based on current market value, this was no longer sustainable. However, in acknowledgement of the increase in metal prices our clients have enjoyed, we will reduce the percentage rates to reduce the impact.

• Allocated Gold - 1.00% (reduced from 1.5%)
• Allocated Silver - 1.90% (reduced from 2.5%)
• Allocated Platinum - 1.00% (reduced from 1.5%)
• Pool Allocated Silver - 0.95%
• Unallocated Gold – will remain free for new and existing clients
• Unallocated Silver – will remain free for existing clients only

For comparison, we note that the GLD ETFs charges 0.40% and Sprott’s Silver ETF 0.45%. We feel our Allocated gold at 1.00% and Pool Allocated Silver at 0.95% compare favourably with the ETFs when the Perth Mint’s Government Guarantee as well as the ability to take delivery in any of the Perth Mint’s coin and bar products are taken into consideration.

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