The purchasing power of physical gold and silver – hedging inflation and economic risks

Physical gold and silver are one of the most preferred ways to protect wealth on the long term. As physical gold and silver are outperforming any currency on the long run, they are one of the best solutions to safely transfer wealth to the next generation. Read why…

A few striking examples how physical gold and silver keep value over currencies and other forms of investment:

Based on USD prices, during the period 1974 to 2014, the cumulative return of physical gold was 3 times of the cumulative return of the S&P 500 Index.
In the USA, 0,72 oz of silver was buying one gallon of gasoline in 1910, and in 2014 as well. However, the price for one gallon of gasoline in the USA was USD 0,10 in 1910, but USD 3,61 in 2014, an increase of 3.600%.
In other words, although the gasoline price increased by 3.600% during 1910 and 2014, the quantity of silver needed to buy one gallon of gasoline is still the same.
From 1900 until 2017, gold outperformed all major currencies, as seen on below chart.

Gold outperformed all major currencies since 1900:

Source: Reuters, Bloomberg

Gold – a century of outperforming currencies

Investment in physical gold is often intended to compensate inflation losses of currencies. The above chart proves the effectiveness of this strategy. Over the last 100 years, gold has heavily outperformed currencies. Global gold production increases 2% annual in average. However, there is no limit to printing banknotes.

Reasons that suggest a substantial rise of gold prices in 2018

Gold analyst Dan Popescu said in April 2018:

“… Gold has recently broken from a technical consolidation formation within a secular bull market started in 2000 ($250) with a potential technical target of $1,450 by the end of the year. Uncertainty in geopolitics with risk of military conflict is gold’s best friend. We had currency wars since 2008, trade wars since 2018 and it looks like military wars are not far. These are ideal conditions for a quantum leap for gold that can push it even above $2,000. Fed’s past chairman Bernanke recently called the present international monetary system “incoherent” and the governor of the Bank of England Carney in 2011 considered the system at a “Minsky moment”. It is I say in unstable equilibrium and ready to collapse and bullish gold.”

More in detail, reasons that suggest a raise of the gold price this year and in future:

Gold for risk diversification: Gold outperformed the S&P 500 Index since decades. Therefore, owning physical gold is a relatively comfortable way to reduce the general risk of investments by ways of diversification. Investors will continue to diversify their investments by buying gold for their investment portfolio during the next 10 years.
Growing global gold demand: Gold prices are formed by supply and demand. Growing demand in gold from emerging-market economies does not seem to slow down. Right now, beginning of July 2018, the gold and silver mints in Switzerland and neighbouring countries are not able to offer prompt delivery. When ordering gold from a mint in Switzerland, delivery is around mid of August 2018, and delivery of silver in about three months.
Need for safety: Gold is perceived as a safe haven in times of crises and economic turmoil. Cautions investors’ choice during such times is physical gold, preferably stored outside of the banking system. Well known large investors, including Carl Icahn and George Soros, are predicting a substantial stock market crash in the near future. If their opinion comes true, many small and large investors will run on physical gold.
Rising global debt levels: Debt levels of many countries continue to grow rapidly, it seems to be easier to print money then to keep national budgets within limits. When national banknote printing presses continue rotating and when national indebtedness increases, investors get concerned and invest in gold. It is not likely that the problem of increasing indebtedness will be addressed with success during the coming years.
S. Dollar may be at its peak:Although the US Dollar has slightly decreased recently, it still remains near its highest level since 2003. Political and economic developments may not further support the US Dollar, which would lead to a decrease from its highly supported current level. This will probably increase the demand in gold, as it happened in the past.
Hedging inflation: During the past, gold prices generally increased with increasing cost of living. This tendency makes gold a good hedge against inflation.
Negative Interest Rates: Decreasing and/or negative interest rates have always been triggering increase of the gold price, as it becomes extremely difficult to generate any significant gains from currencies or bond yields.
Wealth protection since centuries: Particularly physical gold, as well as silver, stored outside the banking system, has been perceived as an intrinsic value. This view has recently seen substantial support by a number of central banks, which either withdrew their physical gold from storage facilities in other countries or heavily increased their physical gold stocks by way of purchasing.
The global crises in 2008 opened the eyes of many people. Not only investors had to watch how irresponsible market behaviour can lead to almost catastrophic results around the globe. The current behaviour of the big players on the money and mortgage markets does not create real trust that a major systemic crisis will not repeat.
Gold is liquid and portable: Physical gold with the purity of 999,9 is treated on the markets equal to cash money. Therefore, it is absolutely liquid and can be sold easily.
Physical gold is portable, especially if stored outside the banking system.

Important warning: The above evaluations are the opinion of the authors, which may not materialise in future. The authors do not hold any position in any precious metals at the time of writing this article.

Prices of the past do not necessarily repeat in future. Technical analyses may not be correct or even fail under unexpected influential developments in global and national politics, crises, economic developments, natural occurrences etc.

Do only consider investing funds that you do not need for your current life style or to cover your liabilities!

If you are interested to buy gold for investment or to store your gold with us, please contact us through the form below.
Thank you!

Investment advisers, law offices, service providers in Cyprus:

You are now able to provide your clients storage and trade facilities for physical gold and silver!

Gold and silver, a safe haven during current turmoils

Physical old has been the safe haven to safeguard wealth since centuries. With a purity of 999,9, physical gold is equal to cash money and thus the most liquid form of investment. Gold reserves held by governments and banks with a purity of 999,9 takes place in their cash positions.

Natural and corporate persons investing in physical gold and silver do not necessarily speculate on short term gains but aim to shield their wealth from unpredictable political and economical influences. Although gold and silver gained 9% (gold based on Euro) and 11,1% (silver based on Euro) annually during the last 15 years, their values may also decrease. However, on the long term, gold and silver turned out to be the most resilient investment to hedge certain risks and to safeguard wealth.

Cyprus, Europe and the world are currently exposed to political, financial and regulative turmoils, defaulting economies, zero or minus interest rates, sanctions and bank account closures.

Investment funds, companies, high and ultra high net-worth individuals (HNWI and UHNWI) are seriously looking for alternatives, for safe havens to protect and to safeguard their assets.

Investing in physical gold or silver is one of the solutions for long-term, resilient asset protection.

Cooperation opportunity for Cyprus investment advisers, law offices and service providers

We are offering investment advisers, law firms and service providers in Cyprus the unique opportunity to offer their clients investment in physical gold or silver, including security storage facilities, outside the banking system.

High-security storage facilities in Liechtenstein, same day delivery, same day buy-back, no CRS, storage and insurance in the name of the customer are just some of our advantages. For a full list of our unbeatable advantages, please click here.

Contact us for an individual meeting

Investment advisers, law firms and service providers in Cyprus, if you wish to assist your clients with a very unique, safe and discrete opportunity to safeguard their assets, please contact us through the contact form at bottom of this page.

We will visit you to provide valuable background information and to explain how you will benefit from our cooperation.

In a hurry? Get an overview with our Power Point Presentation (download), or as PDF file (opens in your browser).

Do only consider to invest funds that you do not need for your current life style and your liabilities.

Watch gold, silver, platinum, palladium and EUR/USD live on the below interactive charts.

Important warning: Prices of the past do not necessarily repeat in future. Technical analyses may not be correct or even fail under unexpected influential developments in global and national politics, crises, economic developments, natural occurrences etc. Do only consider to invest funds that you do not need for your current life style or to cover your liabilities!

Gold / USDollar

Globally, gold is mainly -but not only – traded based on its USD value.

Gold / EURO

European buyers often prefer to buy gold based on their own currency, Euro. Global buyers holding Euro may prefer buying gold based on Euro when the Euro is strong.

Silver / USDollar

The global majority of silver is traded in USD.

Silver / EURO

European buyers often prefer to buy silver based on their own currency, Euro. Global buyers holding Euro may prefer buying silver based on Euro when the Euro is strong

Gold / Silver

The parity of gold to silver is an important indicator when predicting possible future price development of gold against silver or silver against gold.

Platinum / USD

Platinum can be traded both in US Dollar and Euro denomination. Thus, the EUR / USD parity plays an important role.

Platinum / EUR

Platinum can be traded both in US Dollar and Euro denomination. Thus, the EUR / USD parity plays an important role.

Palladium / USD

Palladium is a very rare precious metal, mainly used in the car industry and electronics industry.It can be traded both in US Dollar and Euro denomination. Thus, the EUR / USD parity plays an important role.

Palladium / EUR

EURO / USD

As gold and silver are mainly traded based on US Dollar and Euro, the EUR / USD parity is of course of interest.

Do only consider to invest funds that you do not need for your current life style or to cover your liabilities!

The World Gold Council today launched a one-off essay collection, Gold 2048, bringing together industry-leading experts from across the globe to analyse how the gold market is set to evolve in the next 30 years.

Key conclusions emerging from authors such as George Magnus, senior economist; Rick Lacaille, Global Chief Investment Officer of State Street Global Advisors; and Michelle Ash, Chief Innovation Officer at Barrick Gold include:

The expanding middle class in China and India, combined with broader economic growth, will have a significant impact on gold demand.
Use of gold across energy, healthcare and technology is changing rapidly. Gold’s position as a material of choice is expected to continue and evolve over the coming decades.
Mobile apps for gold investment, which allow individuals to buy, sell, invest and gift gold will develop rapidly in India and China.
Environmental, social and governance issues will play an increasing role in reshaping mining production methods.
The gold mining industry will have to grapple with the challenge of producing similar levels of gold over the next 30 years to match the volume it has historically delivered.

Aram Shishmanian, CEO of the World Gold Council commented:

“Since its creation in 1987, the World Gold Council has worked with policymakers, regulators and industry participants to drive understanding of and, ultimately, demand for gold.”

“The next 30 years will no doubt bring significant changes – some we anticipate, some that none of us predict. I am delighted that in Gold 2048 we have brought together a stellar set of contributors – economists, investment managers, leaders in the mining industry, as well as our own specialists – to consider the global trends and dynamics that will drive this fascinating market forward.”

The full collection is available for download here: Report Gold 2048.

You can follow the World Gold Council on Twitter at @goldcouncil.

(Press release of the World Gold Council, 17 May 2018)

Insuring our valuables and the precious things that we have is essential. If you own physical gold, silver or other precious metals, you would not like to risk loss of a part of your wealth. But are you sure that the insurance of your gold and silver really provides full coverage, full in terms of the full value being insured, and in terms of really being insured against all risks?

Storage of your gold in security deposit boxes

Gold investors who hold a relative small amount of gold, typically some gold coins and perhaps some bars, are often renting smaller security deposit boxes from banks. However, it is getting more and more difficult to find available security deposit boxes at banks.

Generally spoken, the lessee of security deposit box is himself or herself responsible for the insurance of the valuables kept in the security deposit box. The content of security deposit boxes at banks is not automatically covered by a bank’s own insurance.

The annual rent for security deposit boxes at banks may or may not include insurance. In cases where the security deposit box rent does include insurance, it’s worth to have an eye on the coverage. While some banks are providing insurance coverage against fire and robbery for up to about EUR 70.000, some banks only provide insurance coverage up to EUR 1.500. The value of few gold coins or a small gold bar does already exceed such a small coverage. In this case, you should arrange for your own insurance coverage, or you may be able to include your gold in your security deposit box in your household insurance if the conditions allow for.

Storage of gold in bank vaults

Bank customers who buy a bit larger amounts of gold from a bank will not be able anymore to store their gold bars or gold coins etc. in the bank’s security deposit boxes, because the bank will not hand out larger amount of gold, as it is part of the bank’s liquidity and an asset of the bank on its balance sheets. Another reason is that typical security deposit boxes are simply too small.

Typically, the bank will issue a certificate or confirmation to the gold buyer, confirming that the gold buyer bought X amount of gold. The important point here is that you own “rights” on a specific amount of gold that is stored in the bank’s vaults, but you are not the assigned owner of specific gold bars with specific serial numbers. “Your” gold remains in the assets of the bank, which is the legal owner of that gold, and it is used by the bank to maintain its own liquidity ratios. This type of storage is called unallocated storage.

The gold of the bank is of course insured. However, insuring gold is expensive, the premiums are high. Therefore, most banks sign an insurance coverage up to a certain amount, let’s say up to EUR 600 million, but then store gold, silver or other precious metals worth EUR 1,5 billion. In other words, only 40% of the entire gold and other precious metals in the bank’s vaults are insured.

The idea behind this is, other than the cost concerns of the bank, the bank’s assumption that robbers would not be able to steal the entire amount of gold etc. stored.

If a customer discusses this issue with the banker, the banker will most probably explain that the customer’s gold is indeed covered by the insurance, because the customer’s gold has a value of, let’s say EUR 2 million, while the bank’s insurance coverage is EUR 600 million. That sounds logic.

However, in case of robbery or damage of any kind, the insurance company generally pays only the percentage of coverage of the entire gold, silver and precious metals stored. In other words: If gold worth EUR 100 million has been stolen, the insurance company will argue that the insurance coverage of EUR 600 million is 40% of the gold etc. stored, and therefore only pay 40% of the stolen gold; they will pay EUR 40 million for the gold stolen worth EUR 100 million.

Another issue to be looked at is the coverage of instances. Insurance coverage of banks does generally not include embezzlement, which means infidelity by employees.

Storage of your gold, silver and other precious metals with
Shanda Precious Metals

Under its brand Shanda Precious Metals, Shanda Consult offers segregated and allocated storage of gold, silver and other precious metals in high-tech and high-security storage facilities in Liechtenstein.

Gold and other precious metals stored in the safekeeping facilities in Liechtenstein is always fully insured. All our customers are provided with an “Evidence of Insurance” certificate issued by the insurer, mentioning the name of the customer and the total amount insured. Thus, the customer is always ensured that his or her gold or silver or other precious metals are fully insured. The insurance premium is included in the storage fee (of segregated and allocated storage agreements).

The insurance coverage of gold and silver etc. stored in the high-tech and high-security storage facilities in Liechtenstein does also include embezzlement, meaning infidelity by own employees.

Unallocated gold storage, allocated gold storage, segregated gold storage or allocated and segregated gold storage – these terms describe the form of storage and the legal relation of a gold owner with his or her physical gold purchased and stored.

The same terms are of course also used for the storage of physical silver, platinum or palladium, or other items. To make the text easy to read, we will focus on the term gold storage, representing the storage of other precious metals or items as well.

Buyers of physical gold or silver or other precious metals are often not aware of the terms “unallocated”, “allocated”, “segregated” and “allocated and segregated” storage. Or, they do not really know what those terms describe. And in many cases, they do not know the legal and virtual consequences of those different forms of gold storage.

The differences between “unallocated”, “allocated”, “segregated” and “allocated and segregated” gold storage are important though, and thus are their consequences.

If you are storing your physical gold under your bed or in your chimney hood, you might opt out now and read other pages of our website. However, if the physical gold that you own or intend to buy is a bit too much to be stored in your house, then you should read this article carefully.

Following, we will shed light on possible forms of physical old storage.

Unallocated gold storage

“Unallocated” means not booked, unchartered, vacant, unoccupied, unreserved, available or free.

Let’s say a bank or a security storage company has 30 tons physical gold stored in its vaults. You decided to diversify your investments to hedge your investment risks. Therefore, you decided to buy 25 kg physical gold. You visit your bank and buy 25 kg gold in form of bars.

After you have successfully concluded your deal, your banker presents you your certificate or confirmation that you purchased and own 25 kg gold and that the bank stores this for you. Or, your bank opens a gold account for you and 25 kg gold are credited to your gold account, without a value, because the value changes.

Neither the certificate nor the gold account mentions any bar numbers. That means that from the gold stocks of the bank no specific gold bars have been allocated to you as their owner.

The scenario is that the bank did not sell you, and thus you do not own, any specific gold bars, with the number XXX to YYY. In other words, you do not “own” physical gold, but you own the right on any 25 kg of the bank’s gold stocks.

There are several very important consequences of unallocated gold storage. One important consequence is that you will not be able to take your gold with you one day to store it somewhere else. That is because you do not own any particular gold bars.

Another important fact is that the gold on which you bought “rights” remains in the assets of the bank. Your assets are solely your “rights”.

Gold is equally liquid to cash money. Banks include the gold in their assets when calculating various capital adequacies that they must meet as per the relevant fiscal regulations. This is another reason why banks will not hand out the physical gold to their customers. Customers that bought unallocated gold actually do not own any specific gold bars.

In case of the bank’s insolvency or claims from third parties against the bank, your gold is under risk as well, because it belongs to the bank’s assets and will be included in the liquidation trust, for example.

Allocated gold storage

Based on the above example, the difference of allocated gold storage is that specific gold bars from the bank’s stocks will be allocated to you when you buy gold. You will then see the serial numbers of gold bars on your certificate or confirmation of ownership or on your gold account confirmation.

That means that you do own specific gold bars, identified by their serial numbers, stored together with the bank’s general physical gold stock. Somewhere down there in the bank’s vaults, among many other gold bars, you would (theoretically because they will not allow you to enter their vaults) find your own gold bars with your serial numbers.

You might want to rent your own safety deposit box at the bank and store your 25 gold bars of one kilogramme each in your own box. Most likely the bank will not have any empty safety deposit boxes available.

The bank might also try to convince you that their own vaults are much safer and that you would benefit from their insurance coverage, if you do not put your physical gold bars into your own safety deposit box but leave it in their own vaults. If this should be the case, the reason is most probably that the bank intends to keep your allocated 25 gold bars within their own assets. There are ways in accountancy to both allocate specific gold bars to customers and to keep them in the bank’s own assets.

Segregated gold storage

“Segregated” means separated, isolated, divided, detached or cloistered. In terms of physical gold storage, it means that the bank or the security storage company stores the gold bars that you purchased in a clearly separated form, away and clearly distinguishable from other gold bars belonging to other customers or to the bank or the security storage company.

This is generally done buy relocating your gold bars from the bank’s or security storage company’s own stocks into a separate box that is marked in a way that you can be identified as the owner of that box. Those boxes are often sealed (they should be sealed), and your certificate or confirmation of ownership or your gold account will show the seal number(s) of those boxes.

Depending on the amount of gold bars that you own, your gold will be stored in one or more boxes. A box like on the photo above, showing the boxes that Shanda Precious Metals is using, for example, can hold 20 gold bars of one kilogramme each, worth today (04 May 2018) approx. USD 851.350 or EUR 713.150.

In case of 31,1 kg silver bars, the boxes may look like our boxes in the below photo.

Segregated storage separates a customer’s gold bars from all other gold bars and makes them distinguishable. Segregated gold storage makes the separation from the assets of a bank or a security storage company easy because the separated location can easily be described and distinguished. This is a safe way for the owner of the gold to have it in their own assets solely, being protected against third party claims or insolvency of the bank or the security storage company.

However, there are important reasons to prefer “segregated and allocated” storage, as explained below.

Segregated and allocated gold storage

Segregated and allocated storage, as the term explains, both separates your gold bars from any other gold bars and allocates your particular gold bars to you. This is the most sophisticated and most secure form of gold bar storages.

In case of segregated and allocated storage, your inventory confirmation or inventory list will name both the box seals and the serial numbers of your gold bars. Both your storage container and your gold bars are unmistakably defined and distinguishable.

This is important, for example, for the insurance of your gold bars in your own name, or it may be required by tax authorities for asset declarations.

Segregated and allocated gold storage makes it easy to unmistakably distinguish gold stored in that way from the bank’s or the security storage company’s own assets. Your gold bars are clearly your gold bars.

Banks, financial institutions and funds etc. only accept segregated and allocated gold storage, as this is the safest way, allowing them to have their gold stored for example with us but in their own assets and provides them with the possibility of insurance coverage in their own names.

Shanda Precious Metals

We provide safekeeping storage in our facilities in Liechtenstein solely in the form of segregated and allocated storage, unless you opt to rent from us your own strong room or safe (small vault) and store your gold bars there.

Our segregated and allocated safekeeping storage services include insurance coverage in the name of our customers as a standard, with no extra costs for our customers.

Precious metals stored with us in the name of our customers never forms a part of our own assets but is under full legal ownership of our customers.

You are granted access to your physical gold or silver or other precious metals and items 24/7.

We recommend that you read more about our services here.