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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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Infographic: Platinum As An Investment

Topics [ invest in platinum Australian Platypus ]

RESEARCH AND ANALYSIS

According to Part 3 of the Platinum Series, global demand for platinum as an investment has increased 30-fold since 2003.



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Order Limits Removed

Topics [ 2014 Year of the Horse buy gold online where to buy silver bullion silver bullion coins gold bullion coins ]

BULLION BARS AND COINS

The previous order limits of 20 Lunar Horse 1oz silver bullion coins and 5 Lunar Horse 1oz gold bullion coins no longer apply.

The policy was designed to give as many customers as possible the chance to purchase these limited releases from The Perth Mint.

With immediate effect, web and telephone customers as well as buyers visiting The Perth Mint Bullion Desk may now order these coins without restriction.



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Manufacturer Accreditation Provides Comfort To Investors

Topics [ silver investing gold investment silver bars gold bars bullion bars ]

EDUCATION

To trade efficiently, market participants need to agree on standards for the products they deal in. In addition to agreeing where the product they will trade will be located (eg COMEX gold must be in a warehouse in New York) and in what form (eg bars weighing 100oz), market participants need to agree on which manufacturers they will accept product from. This is the purpose of accreditation.

In the precious metals markets it is the refiners that are accredited, as refiners are the first point of supply into the market of purified and standardised gold and silver. Accreditation occurs on a market by market basis as well as by metal. So it is possible that a refiner may be accredited for gold but not silver, or in one market but not another. Most of the major refiners are accredited across markets. For example, The Perth Mint is accredited as a refiner, weight master and assayer with the:

London Bullion Market Association (LBMA)
New York Commodity Exchange (COMEX/CME)
Dubai Multi Commodities Centre (DMCC)
Tokyo Commodity Exchange (TOCOM)

The most widely recognised and respected accreditation is that granted by the LBMA, which is also licenced by the CME as part of its own accreditation procedures for COMEX. This status is not just based on the requirements for listing, which include an established track record and minimum annual refining volumes and tangible net worth, but also the rigorous scrutiny of an organisation's standards and procedures and the successful completion of searching practical testing before being accepted for accreditation.

In addition, LBMA accredited refiners are subject to a Proactive Monitoring regime where they have to demonstrate the are maintaining LBMA refining and assaying standards on an ongoing basis.

Market participants can therefore be assured of the stated weight, purity and integrity of the products produced by accredited refiners. The end result is that traders will accept bars from any accredited refiner without question in settlement of their trades, which simplifies the process for both buyer and seller.

The LBMA's list of accredited refiners can be found here.

Review of small investment cast bars made by the LBMA-accredited Perth Mint.

Finally, it is important to distinguish between accreditation of refiners from accreditation of product. Each market has different rules as to what form is acceptable for settlement. For example, while The Perth Mint is accredited with both the London and COMEX markets, only its 400oz Good Delivery Bar is accepted in the London market whereas only three Perth Mint gold kilo bars (or a 100oz bar) would be acceptable in settlement of a COMEX futures contract. Perth Mint coins would not be acceptable in either of those markets as they are professional wholesale markets which do not deal in small sized products.

While small sized bars and coins are not themselves accredited, investors do often take comfort that a manufacturer of bars and coins is accredited because it means that the accreditation weight, purity and integrity standards will apply across the organisation and thus to all of their products.

Text by Bron Suchecki



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Infographic: Platinum Supply And Demand

Topics [ Australian Platypus platinum prices ]

RESEARCH AND ANALYSIS

Platinum’s supply is concentrated in medium-to-high risk jurisdictions, while demand is strongly tied to worldwide auto production. Here we present Part 2 of the Platinum Series.



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Monthly Sales - August 2013

Topics [ gold minted bars silver bullion coins Monthly Sales bullion coins gold bullion coins ]

STATISTICS

Total ounces of gold and silver sold by The Perth Mint in August 2013 as coins and minted bars.

 - Gold (Au): 30,430.10

 - Silver (Ag): 691,258.63



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