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.
Blog Disclaimer, Comments Policy, Copyright Policy