Podcast

Paul Tustain: Gold Is Sending a Signal That the Monetary System Is in Grave Danger

Friday, April 8, 2011, 2:06 AM

"When a country's public debt exceeds 90% of GDP, that is the magic number. You get to 90%, there is no way back, and that is the number that the U.S. is going through pretty much as we speak. It is also the number which the UK has gone through; all of the PIIGS are going through it, as well. They are all going past the 90% debt to GDP ratio. Obviously, Japan is miles past it already. It's up to 200%+. There does not appear, in the historical analysis, to be any great likelihood of getting back from that level of debt safely. There is this strong evidence that above 90% debt to GDP, you will experience either a cataclysmic default or some form of very serious inflation."

So observes Paul Tustain, gold market analyst and founder of BullionVault. In his view, gold serves as a beacon who's price is currently signaling the monetary system is in grave danger. He and Chris discuss the primary factors driving the price of gold and smart strategies for investors looking to build or maintain their holdings of the metal.

Click the play button below to listen to Chris' interview with Paul Tustain (runtime 56m:55s):

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In this podcast, Paul covers:

  • The differences between unallocated and allocated buillion and the market problem that led Paul to found BullionVault
  • How central banks have recently shifted to become net buyers of gold after a long period of dis-hoarding bullion, and how this - combined with surging private investment - has sent demand for the metal skyrocketing 
  • Why we're currently experiencing inflation and deflation at the same time: Our monetary policy is pushing more and more money into short-term investments, driving up the price of the things we use today (food, fuel, etc.) and lowering prices of the things we finance over longer periods (like houses)
  • Paul's approach to valuing gold and why he sees $3,844/ounce as a defensible (and conservative) estimate of its appropriate value
  • Paul's perspective on silver, gold miners, and ETFs
  • The purpose and advantages of the allocated custodial bullion purchasing and storage model that BullionVault offers

Click here to read the transcript 


BullionVault's Director, Paul Tustain, founded BullionVault as a response to a widespread perception of increasing systemic risk in the financial world. He remains in full day-to-day control, and in his view global systemic risk has become still more acute. He is committed to directing the business in such a way that at every step it retains its first objective of using gold to secure customers against the threats in the international financial system. He is also the editor and publiser of Galmarley.com, a well-regarded and free educational resource for prospective gold buyers.


Our series of podcast interviews with notable minds includes:

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40 Comments

plato1965's picture
plato1965
Status: Platinum Member (Offline)
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Posts: 615
Time preference

Why we're currently experiencing inflation & deflation at the same time: our monetary policy is pushing more and more money into short-term investments, driving up the price of the things we use today (food, fuel, etc) and and lowering prices of the things we finance over longer periods (like houses)

That was probably one of the most important points I got from the interview... I think the "quantity theory of money", is only a 1 dimensional view... there's a "temporal theory", and a "tangible vs virtual" theory in there as well..

Nervousness increases the premium on liquidity... options...

and also the demand for tangibles.. something real.. no default risk.

Gold is benefiting from both of those forces, but silver even more so... if gold is a metallic proxy for land (also limited and doesn't grow even at 1% pa (only problem - lack of portability..), then silver (or copper) is a metallic proxy for oil, consumed, depleting...

idoctor's picture
idoctor
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great video today on CNBS

Nice interview..thanks Chris

great video today on CNBS with Mar Faber.

http://video.cnbc.com/gallery/?video=3000015563

 The Federal Reserve's money-printing policies continue to make gold an attractive investment even though it has hit a succession of new highs recently, Marc Faber, author of the Gloom Boom & Doom report, told CNBC.

Gold Bars
AP

Faber, sometimes called "Dr. Doom" for his contrarian investment perspectives and often dour views on the economy and stocks, rejected the notion that gold is in a bubble even as it begins to approach $1,500 an ounce.

In doing so, he related a story from a conference he attended this week where he asked the investment professionals in attendance if any had more than 5 percent of their personal assets in gold. No one raised a hand.

"If it were a bubble a lot of people would have gold. The whole world would be trading gold 24 hours a day," he said. "But I don't think it's really a bubble. I think gold is maybe cheaper today than it was in 1999, when it was $252.

What makes gold such an attractive investment is due in part to the Fed's move to keep the US dollar cheap as a way to boost asset prices and stimulate a recovery.

Gold is denominated in US dollars, so a decline in the greenback makes the metal—along with most other commodities—cheaper to buy on the global markets.

Investments in hard assets will be good buys in the future as Chairman Ben Bernanke and the rest of the Fed continue the liquidity-friendly policies, Faber said.

However, that also will mean bad news for consumers, who will pay more for food, energy and a broad spectrum of other goods as inflation accelerates.

That will occur, Faber said, even if the Fed enacts incremental interest rate increases. That's because small raises won't be able to keep pace with inflation and thus won't slow down the hike in prices in real dollar terms.

"One day they will increase it by a quarter percent. But what does it mean when commodity prices are going through the roof, energy prices are going up, health care costs are going up, insurance premiums are going up?" he said. "Everything is going up. Only at the Federal Reserve is there no inflation."

In that environment, cash and bonds will lose value. Other good choices besides gold, he said, are "commodities, real estate, art, collectibles and so forth, anything that essentially cannot be multiplied at the same rate as paper money, that is subject to the printing presses of Mr. Bernanke."

SingleSpeak's picture
SingleSpeak
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Posts: 430
Chris hits it out of the park - Great interview!

plato1965 wrote:

Why we're currently experiencing inflation & deflation at the same time: our monetary policy is pushing more and more money into short-term investments, driving up the price of the things we use today (food, fuel, etc) and and lowering prices of the things we finance over longer periods (like houses)

That was probably one of the most important points I got from the interview... I think the "quantity theory of money", is only a 1 dimensional view... there's a "temporal theory", and a "tangible vs virtual" theory in there as well..

Nervousness increases the premium on liquidity... options...

and also the demand for tangibles.. something real.. no default risk.

Gold is benefiting from both of those forces, but silver even more so... if gold is a metallic proxy for land (also limited and doesn't grow even at 1% pa (only problem - lack of portability..), then silver (or copper) is a metallic proxy for oil, consumed, depleting...

+1

This interview needs another listen. My brain needs to defrag to allow the new data in. He truly cuts to the bone on gold and debt to GDP, etc. 

SS

jumblies's picture
jumblies
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Excellent interview.

Excellent interview. Especially liked the explanation of the bond markets and the Portuguese cement guy story at the end.

jturbo68's picture
jturbo68
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Posts: 193
Really Helpful

Man this was a eally helpful interview!

Money moving out of long term to short term was really insightful in terms of why commodities are so nuts.

I hadnt understood the whole Gold Bullion storage abroad vs having it trapped within ones own country dynamic.

I really learned a lot WRT use  of a PM holding as a way of normalizing value while the rest of the currency world dropped --- the portugal investor story.  That was an illuminating story about how to protect an asset.

In regards to the story of the Rich Man from Portugal:

I kind of have a different feeling about the debasement that we are in the midst of currently in the fact that Portugal in the 70s would have been

an island of trouble sitting in a world of relative stability.  In that regard, there was a place to sidestep the problem.

WIth the comming issues as I see them, the troubled island has become the economies of the entire world. 

I think one can potentially sidestep the problem (perhaps) by going to gold and waiting for things to stabalize, or by becoming more self reliant in terms of Land, Food, Water and the like.

If one goes to Gold, then the play would appear to be a bet that after 10-20 years of riding it out, the world will stabalize and there will be cheap investments to be had by converting the gold.  Another assumption is that things are stable enough in general to live while the transition is taking place.

If one goes to Land and self sufficiency, the play would be more along the lines of a belief that things may not transition to recovery mode for a long time and that a different way of life is needed.  With this case, a way to hopefully survive the transition is needed.

Of course, one can persue both strategies as a hedge.  :-)

Very good interview! 

Thanks

John

allenwong8838's picture
allenwong8838
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Posts: 18
Illuminating

Very nice interview, thanks Chris.

leweke1's picture
leweke1
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Joined: Dec 18 2008
Posts: 99
PM Price Increase Perspectives

From Turd Ferguson today, with gold approaching $1500 and silver approaching $41...

"We should all be very enthused by the action today....a little sad and apprehensive, too. Days like these just make it more obvious that we are correct. Yes, the current economic system is ending. Fortunately, there is still time to prepare but prepare we must. Hard times lie ahead."

I couldn't agree more.  I've hated to see what the PMs are doing for the last 6 months, because it means we've understood the situation correctly (while hoping we were actually wrong.)

Very nice interview!!

Carl

SailAway's picture
SailAway
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Posts: 352
plato1965 wrote: Why we're

plato1965 wrote:

Why we're currently experiencing inflation & deflation at the same time: our monetary policy is pushing more and more money into short-term investments, driving up the price of the things we use today (food, fuel, etc) and and lowering prices of the things we finance over longer periods (like houses)

That was probably one of the most important points I got from the interview... I think the "quantity theory of money", is only a 1 dimensional view... there's a "temporal theory", and a "tangible vs virtual" theory in there as well..

Nervousness increases the premium on liquidity... options...

and also the demand for tangibles.. something real.. no default risk.

Gold is benefiting from both of those forces, but silver even more so... if gold is a metallic proxy for land (also limited and doesn't grow even at 1% pa (only problem - lack of portability..), then silver (or copper) is a metallic proxy for oil, consumed, depleting...

Great interview Chris!

This is best explanation I've heard about inflation and deflation happening at the same time. If you haven't seen Paul Tustain's presentation about how he calculated the $3,844 price for gold, here is the link again (it has been posted already a couple of weeks ago):

http://gold.bullionvault.com/How/GoldValue

robbie's picture
robbie
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BullionVault

Agree......very informative and useful. This interview series was good to begin with, but now it is superb.

Two questions:

1. Anyone care to share any perceived negatives or potential problems with the BullionVault model?

2. Is there any way for the prototypical Fidelity/ Vanguard 401K/ 403B retirement account holder to utilize BullionVault? Anyone else feel trapped?

Rob 

SailAway's picture
SailAway
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Posts: 352
robbie

robbie wrote:

Agree......very informative and useful. This interview series was good to begin with, but now it is superb.

Two questions:

1. Anyone care to share any perceived negatives or potential problems with the BullionVault model?

2. Is there any way for the prototypical Fidelity/ Vanguard 401K/ 403B retirement account holder to utilize BullionVault? Anyone else feel trapped?

Rob 

1. I opened a BV account a few months ago and so far it has worked well for me. Being new to PM, I thought it was a great model since I didn't have to worry about the quality of the product, insurance, Vault etc... The gold (or silver) is allocated but at the same time you can get in cash instantly 24/7 so it's a great model I think.  I was actually happy to hear that Chris also has an account, it reinforces my opinion about BV.

2. My self-directed 401-K owns a BV account so that is possible for sure. So if you have an old IRA/401-K you would need to roll over them first to a self-directed one, otherwise I would think you can't open a BV account in a regular 401K

Seeker45's picture
Seeker45
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Concerns about BullionVault

  I'm glad Robbie raised the question about concerns. I have some concerns about the safety of BullionVault. I'd like to explain them. Hopefully someone can put these concerns to rest because I'd like to use BullionVault. I also thought it was a great interview. Here are my concerns:

  1. What happens if the internet goes down? What if it goes down just when I need to make a trade? What if the server that BullionValult uses goes down? How safe it is to put a large amount of money at risk in sole reliance on an internet connection that I don't know anything about?

  2. My second concern is greater than my first. What happens if there is fraud or some other "glitch" somewhere in the BullionVault system? I don't see where I am protected against fraud or errors or omissions. I did see mention of an insurance policy on the website but I don't believe that is enough. I believe I would need to be named as an additional insured under that policy for me to derive benefits from the insurance coverage. I also saw that the policy expires in 2012. I would need to legal undertaking from BullionValult that the policy will be renewed for as long as I choose to invest. Further, even if I were an additional insured and even if there were guaranteed renewal, which I doubt Bullion Vault would agree to, I would need to be satisfied that the insurer has sufficient assets to cover my loss. I would also need to be satisfied that the terms of the insurance policy are broad enough to cover any conceivable peril, e.g., fraud, loss, theft, error, omission, that might occur. Insurance policies typically exclude perils related to nuclear accidents and war. Both of those events are now more likely happenings. I did see some mention of Lloyds of London as an insurer. If my understanding is correct, Lloyds is not an insurer but a marketplace of insurers.

  All these concerns amount to the type of "due diligence" that a legal analysis would undertake of the risks involved in  BullionVault. As I say, BullionVault has so many benefits that I would like to use it. I hope someone might write and dispel my concerns and prove them to be groundless. Maybe a representative of BullionVault would even weigh in on this dialogue as I am an interested, potential customer.

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GregGH
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Really  enjoyed the

Really  enjoyed the interview AND the good questions from fellow listeners.

The book mentioned ( http://www.amazon.com/This-Time-Different-Centuries-Financial/product-re... ) This Time Is Different: Eight Centuries of Financial Folly   - wonder if we can get Chris to summarize it ... a few comments on amazon mentioned a tough read ... just a thought ... better to have Chris 'wear out than rust out'

It does make you consider opening an account - great low keyed ad ... only  wish they  dealt in Cdn dollars as well ... yep - I am lazy.

Greg

ps - just googled this - trying to find Niall Ferguson's review of the ebook mentioned --  http://www.economics.harvard.edu/faculty/rogoff/TTID_Discussions

hmm - this wil keep me busy for  a while

ps- here is Charlie Rose link to  interview - ties in Niall as well

http://www.charlierose.com/view/interview/10707

kito's picture
kito
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argentina

mr. tustain obviously was not anywhere near argentina when he paints a picture of relative safety during its currency collapse. my wife, who is ecuadorian, worked at citigroup private banking latin america division in new york during the crisis. there were people flying in from argentina with loads of cash looking to make deposits here. and many of them had stories of rampant robberies where anyone suspected of keeping cash in their homes had armed home invasions in search of the cash. so to say that arming oneself is not necessary is naive

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Great interview!  Many

Great interview!  Many thanks to Chris for making this available.  Mr. Tustain's ideas about the bond market are fascinating and to some extent revelutionary.  I really haven't read much analysis of this "piling up" idea but I certainly plan to do some of my own.

SagerXX's picture
SagerXX
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bman wrote: Mr. Tustain's

bman wrote:

Mr. Tustain's ideas about the bond market are fascinating and to some extent revelutionary.  I really haven't read much analysis of this "piling up" idea but I certainly plan to do some of my own.

Second that!  And Dr. Chris' image of sloshing the water from one end of the tub to the other (where it suddenly makes a big "wave" and splashes all over the place) was useful for me (at best, an educated layman on finance etc.).

KugsCheese's picture
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How is the Gold Secured?

Sounds interesting but a bigger country could easily invade Switzerland and commandeer the gold.   Even without warfare between nations, there is the question of how the gold is protected from a well-armed criminal gang with high-powered weapons.   Can someone shed light on how the gold is secured in Switzerland?

ao's picture
ao
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KugsCheese wrote:Sounds

KugsCheese wrote:

Sounds interesting but a bigger country could easily invade Switzerland and commandeer the gold.   Even without warfare between nations, there is the question of how the gold is protected from a well-armed criminal gang with high-powered weapons.   Can someone shed light on how the gold is secured in Switzerland?

No one's going to invade Switzerland.  Why do you think it came through W1 and WW2 unscathed?  There's a famous story of a Swiss officer showing a German officer their defenses including mountain passes wired with explosives and other defensive measures.  The Swiss officer described how they could quickly mobilize 1 million of their well armed citizens.  The German officer said, "What if I invade with 7 million soldiers".  The Swiss officer replied, "Then we'll each have to fire 7 times."

Just a question.  What's the difference between a "high-powered" weapon and a "?low-powered?" weapon?;-) 

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SagerXX
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ao wrote: Just a question. 

ao wrote:

Just a question.  What's the difference between a "high-powered" weapon and a "?low-powered?" weapon?;-) 

Seriously.  Are we talking ray-guns here or something?  

I like a good heist flick as much as the next guy, but dang:  You don't just "stick up" the Gnomes of Zurich.  

ao's picture
ao
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SagerXX wrote: ao

SagerXX wrote:

ao wrote:

Just a question.  What's the difference between a "high-powered" weapon and a "?low-powered?" weapon?;-) 

Seriously.  Are we talking ray-guns here or something?  

I like a good heist flick as much as the next guy, but dang:  You don't just "stick up" the Gnomes of Zurich.  

LOL.  I hope KugsCheese takes this all in good fun.  It's just that "high powered" is a favorite phrase used by MSM writers who don't seem to know dip squat about firearms.  They even called the 9mm. G19 that was used by the gunman who shot Congresswoman Giffords a "high powered" weapon.

I know it's probably a repost but this video clip speaks volumes about the Swiss and firearms:

Nate's picture
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Gem of the interview: Why

Gem of the interview:

Why we're currently experiencing inflation & deflation at the same time: our monetary policy is pushing more and more money into short-term investments, driving up the price of the things we use today (food, fuel, etc) and and lowering prices of the things we finance over longer periods (like houses)

Another view of this is supply an demand.  Food and fuel are limited commodities in a finite world with an increasing population.  Houses can generated in an almost unlimited fashion.  The exception to lower prices for things we finance over longer periods of time is farmland. 

Nate's picture
Nate
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jturbo68 hit on a key point

jturbo68 hit on a key point for me:

"I think one can potentially sidestep the problem (perhaps) by going to gold and waiting for things to stabalize, or by becoming more self reliant in terms of Land, Food, Water and the like.

If one goes to Gold, then the play would appear to be a bet that after 10-20 years of riding it out, the world will stabalize and there will be cheap investments to be had by converting the gold.  Another assumption is that things are stable enough in general to live while the transition is taking place.

If one goes to Land and self sufficiency, the play would be more along the lines of a belief that things may not transition to recovery mode for a long time and that a different way of life is needed.  With this case, a way to hopefully survive the transition is needed.

Of course, one can persue both strategies as a hedge."

I would like to hear other CM'ers to weigh in on this.

tustainp's picture
tustainp
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401K

If you get in touch with support@BullionVault.com they'll tell you the US firms which are currently administering 401Ks in gold at BullionVault.  I can't remember who they are.  

Paul Tustain

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Concerns about BullionVault

Paul Tustain exercising my right of reply :)

Internet failure.  We use the internet to communicate.  Your gold is not stored in the internet, it's stored in a vault.  The internet is a remote communications mechanism, and quite a good one.  We can connect with 1,000 customers at the same time, with only about 20 staff.  That's much better than phones.  People don't usually ask what happens to our world if the telephone systems fail.  (And they're all digital now).  The point here is that your gold survives, and we survive, if the internet fails.  I expect we'd get quite a lot of people visiting our office, and of course communication would be harder.  But as a gold holder you are better placed than almost anyone.  Your gold is in physical form in a vault.  We retain a hard copy of every customer's id.  The failure of the internet doesn't change that.  Neither does a widespread digital system meltdown.  So, you are safe, but things would become inconvenient and slow because we'd be crocked by stone-age communications.

I'll discuss some fraud aspects now.  Our first defence is transparency.  Every day we publish the bar lists which are issued by Via Mat, a third party.  Next to it we publish a list of all our holders.  The two match to the gram.  On this public page - which anyone can look at - your holding is listed against your public nickname, which only you know.  So you know that your gold is included in the count, and you know that anyone whose gold was not included would be making lots of noise.  BV is the only custody business in the world which does this daily public reconciliation.  It is the only gold business which ever does a reconciliation down to client level.  That should give you reasonable confidence that as of yesterday things were solid.

So what about the last 24 hours?  Well, there are several extra safeguards.  The first is a contractual restriction on withdrawal.  ViaMat are not allowed to remove gold from the vault without first checking that on our website's front page the withdrawal has been openly declared 24 hours before it is actioned.  And that public declaration identifies how much gold is being removed, and the nickname of the person whose gold is leaving.  So you can then go straight to the daily reconciliation to see that they have that gold.  That's the first control.  The second is a sort of catchall.  Under no circumstances are ViaMat ever allowed to move more than 5% of the gold out of a vault on one day.  On top of that there are private controls which mean that at least five individuals from two separate companies have to acknowledge a withdrawal before it is allowed to go ahead. 

Now, what if the gold is lost or stolen.  That is covered by the insurance. Insurance is the major part of the cost of the custody service.  The storage contract with Via Mat contains a warranty by Via Mat that the insurance refers exclusively to BullionVault owners' gold, and that all the value arising on a claim would be paid to BullionVault.  As regards the length of cover it is standard procedure for Vault operators always to renew insurance and keep it current.  It's another contractual responsibility of Via Mat or - I believe - any other accredited professional bullion market vault. 

The gold is insured with Marsh - one of the biggest insurance companies.  Their logo is on the evidence of cover we publish.  They are participants in the Lloyds marketplace.  As I think you noticed we publish the evidence of insurance on the site.  You are right to question exclusions.  Nuclear attack is excluded - for example - on all the insurance agreements I'm aware of in the bullion industry.  I'll come to what we do about nuclear attack in a moment.  But while we're on insurance the reality is that all insurance depends on the vendors creditworthiness.  So we are at risk.  We are at risk that the gold is stolen at the same time as the insurance company goes belly up.  The two could be causally related too!  But these markets do re-insure to spread risk, and I'm satisfied that in Marsh Via Mat have gone to the right place.  Does this make us all 100% safe?  No.  Of course not.  I do not believe any form of savings or security can be 100% safe.  The best we can do is go much further than anyone else, be very transparent etc.  Here are a few more of our measures.  

We send assayers in to check all the bars every year.  They report directly to the auditors, not to us.  The auditors publish on their own site (where we couldn't tamper) their report on our own systems, as well as the assay report received from the assayers.  Both are 100% independent of us.

We send out to two secret locations a full listing of all BV holders, every day.  The listing location is separated by 1,000 miles.  The network addresses of the files are written in sealed envelopes held at our auditors and the vault operators.  But the files themselves are deeply encrypted, and only our lawyers have the passwords (in Escrow) held in London and New York, only to be released - and only to the auditors and Via Mat in that order - in the event of our annihilation.

There are other important security issues too.  Our Burglar Alarm systems and your Linked Bank Account are important.  So is our use of international vaults, our instantaneous settlement (sell in Switzerland, buy in New York takes less than a minute) which means if you start getting nervous about one country you can switch quickly (in seconds) to another.  There's a shipping right between international vaults too, so do check them out.

More importantly though we must come back to 100% security.  It does not exist.  I want to find the strongest compromise between security, accessibility and cost effectiveness.  I think BullionVault's insured, Swiss stored, daily reconciled, allocated, good delivery bullion in a system which offers instantaneous settlement across three linked international vaults is as good as it currently gets.  We're covered against so many risks.  Bad bars, exchange controls/confiscation, theft, balance sheet failure, data centre failure, unexpected miltarism, office annihilation - and you're even very safe from having someone guess your password!  There's not much they can do but sell your gold and send the money back to your linked bank account, and when they try the Burglar Alarm will sound, telling you on your cellphone that someone is in your BullionVault account..  

It's not perfect because nothing is.  But it's a whole lot safer and cheaper than owning coins at home, just check out the insurance rates if you're not sure about that!  BV insurance is included in your custody charge at 0.12% per annum.  You need to get a quote for a coin hoard to compare.  And local storage (i.e. in your own country) has proven the undoing of many an investor who saw the economic writing on the wall, but didn't have access to the sort of international services we can now so easily locate and use via the internet.  

I hope that covers most of it.  If you'd like to talk further I'm in the office most days, and when I'm not my staff will be pleased to answer your questions.

Paul Tustain.  BullionVault

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Safety in Argentina

You are right I was not near Argentina.  My business partner was though.  He went for a holiday to Buenos Aires, because we'd been discussing what life would be like in an economic meltdown.  He found it extremely agreeable.  I guess part of that was because he wasn't in a panic trying to get his money out.  Your comment powerfully illustrates why you should not keep your riches at home if your country is descending into monetary chaos.  Get the money out in good time.  Then, when the shutters are coming down, saunter off to the airport with empty pockets. No-one will stop you. 

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Paul, Do you know if your

Paul,

Do you know if your service is acceptable for within a Canadian RRSP (the equivalent of the US 401K)?

And regarding the money laundering issue you mentioned, what are the implications of transferring a chunk of Canadian dollars into your account, and then if the Canadian situation gets bad and we decide to move to say New Caledonia (who knows), what are the implications of then taking it out in another currency somewhere else?

Thanks

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Using BullionVault within a self-directed IRA

SailAway wrote:

robbie wrote:

Agree......very informative and useful. This interview series was good to begin with, but now it is superb.

Two questions:

1. Anyone care to share any perceived negatives or potential problems with the BullionVault model?

2. Is there any way for the prototypical Fidelity/ Vanguard 401K/ 403B retirement account holder to utilize BullionVault? Anyone else feel trapped?

Rob 

1. I opened a BV account a few months ago and so far it has worked well for me. Being new to PM, I thought it was a great model since I didn't have to worry about the quality of the product, insurance, Vault etc... The gold (or silver) is allocated but at the same time you can get in cash instantly 24/7 so it's a great model I think.  I was actually happy to hear that Chris also has an account, it reinforces my opinion about BV.

2. My self-directed 401-K owns a BV account so that is possible for sure. So if you have an old IRA/401-K you would need to roll over them first to a self-directed one, otherwise I would think you can't open a BV account in a regular 401K

Fidelity says a self-directed IRA (Roth, etc.) may only hold gold coins, not bullion.  Can you point me to a resource for learning more about setting up a BV account in a self-directed IRA?  

Thanks,

Rob

rhare's picture
rhare
Status: Diamond Member (Offline)
Joined: Mar 30 2009
Posts: 1271
Self Directed IRA and bullion

robbie wrote:

Fidelity says a self-directed IRA (Roth, etc.) may only hold gold coins, not bullion.  Can you point me to a resource for learning more about setting up a BV account in a self-directed IRA?

Fidelity seems to tell people that, but the IRS Publication 590 says on page 48, under Investment in Collectibles (emphasis mine):

IRS Publication 590, page 48, Investment in Collectibles wrote:

If your traditional IRA invests in collectibles, the amount invested is considered distributed to you in the year invested. You may have to pay the 10% additional tax on early distributions, discussed later.

Any amounts that were considered to be distributed when the investment in the collectible was made, and which were included in your income at that time, are not included in your income when the collectible is actually distributed from your IRA.

Collectibles. These include:

  • Artworks,
  • Rugs,
  • Antiques,
  • Metals,
  • Gems,
  • Stamps,
  • Coins,
  • Alcoholic beverages, and
  • Certain other tangible personal property.

Exception. Your IRA can invest in one, one-half, one-quarter, or one-tenth ounce U.S. gold coins, or one-ounce silver coins minted by the Treasury Department.  It can also invest in certain platinum coins and certain gold, silver, palladium, and platinum bullion.

If you look at Notice 98-49, it says, on page 5, question C-4 (emphasis mine):

Notice 98-49 wrote:

Section 304 or TRA 97 amended 408(m) of the Code to permit IRAs to invest in certain platinum coins and in gold, silver, platinum or palladium bullion, provided the bullion is in the physical possession of an IRA trustee.

So the question is what does it mean to be in the physical possession of an IRA trustee?  The Self Directed IRA folks I use have an arrangement with a Brinks storage facility.  Any bullion purchased is stored in the facility under the IRA trustees name.  I hope this is valid.  I may just purchase Eagles for any further investments to be on the safe side since it appears the rule does not require the listed coins to be in possession of the trustee.

One place I talked to said you can set up an LLC that is a IRA trustee.  You can then be an officer of the IRA trustee and can then take physical possession in the LLCs name.  That one seemed really questionable and I wasn't willing to try it.

Don't you just love the IRS and rules designed to make you a criminal or require you to hire lawyers! Yell

michaelandolga's picture
michaelandolga
Status: Member (Offline)
Joined: Jan 3 2010
Posts: 3
Risk

One needs to remember that there is no "perfect" way to hold gold or precious metals - every method of gold ownership is susceptible to entirely valid critiques or "down sides."  In that respect, both Bullion Vault and James Turk's vehicle, GoldMoney, both share the same inherent deficiency.  Alan Greenspan is on record as having said that gold is considered the "ultimate form of payment."  What he is referring to is the actual metal itself - not a promise to deliver the metal (however good or reliable that promise may be).  Whatever strenuous objections to the contrary that might emanate from either Bullion Vault or GoldMoney about the reliability of their services (and I have no reason to doubt the veracity of any of it), those promises will never and can never live up to the standard of physical metal in one's own possession.  Despite the best of intentions, promises are merely that.  While often kept, in extraordinary times promises are sometimes not kept.  On such an occasion, will it matter to you, the intended beneficiary of one of these promises, whether the promise was not kept for justifiable or unjustifiable reasons?  I doubt it.  At the end of the day you simply want your metal. 

Ironically, it is for just such a reason - the abrogation of promises - that precious metals exist in the first place.  Because of this, one might even say that Bullion Vault and GoldMoney (as well as all manner of other "paper gold" contrivances such as ETFs) are antithetical to gold. 

While I think Bullion Vault and GoldMoney have a place in the modern world, it's important to distinguish that they are not - nor will they ever be - replacements for real metal in one's possession (which, not surprisingly, has its own set of down sides).

SingleSpeak's picture
SingleSpeak
Status: Gold Member (Offline)
Joined: Dec 1 2008
Posts: 430
I'd love to spend less time jumping through hoops for Uncle Sam

rhare wrote:

Don't you just love the IRS and rules designed to make you a criminal or require you to hire lawyers! Yell

What did people use to do with their time before they had to spend it all protecting themselves from the IRS?Undecided

SS

robbie's picture
robbie
Status: Bronze Member (Offline)
Joined: Jul 16 2008
Posts: 91
Still trying to get my money out of a Fidelity IRA and into gold

rhare wrote:

robbie wrote:

Fidelity says a self-directed IRA (Roth, etc.) may only hold gold coins, not bullion.  Can you point me to a resource for learning more about setting up a BV account in a self-directed IRA?

Fidelity seems to tell people that, but the IRS Publication 590 says on page 48, under Investment in Collectibles (emphasis mine):

IRS Publication 590, page 48, Investment in Collectibles wrote:

If your traditional IRA invests in collectibles, the amount invested is considered distributed to you in the year invested. You may have to pay the 10% additional tax on early distributions, discussed later.

Any amounts that were considered to be distributed when the investment in the collectible was made, and which were included in your income at that time, are not included in your income when the collectible is actually distributed from your IRA.

Collectibles. These include:

  • Artworks,
  • Rugs,
  • Antiques,
  • Metals,
  • Gems,
  • Stamps,
  • Coins,
  • Alcoholic beverages, and
  • Certain other tangible personal property.

Exception. Your IRA can invest in one, one-half, one-quarter, or one-tenth ounce U.S. gold coins, or one-ounce silver coins minted by the Treasury Department.  It can also invest in certain platinum coins and certain gold, silver, palladium, and platinum bullion.

If you look at Notice 98-49, it says, on page 5, question C-4 (emphasis mine):

Notice 98-49 wrote:

Section 304 or TRA 97 amended 408(m) of the Code to permit IRAs to invest in certain platinum coins and in gold, silver, platinum or palladium bullion, provided the bullion is in the physical possession of an IRA trustee.

So the question is what does it mean to be in the physical possession of an IRA trustee?  The Self Directed IRA folks I use have an arrangement with a Brinks storage facility.  Any bullion purchased is stored in the facility under the IRA trustees name.  I hope this is valid.  I may just purchase Eagles for any further investments to be on the safe side since it appears the rule does not require the listed coins to be in possession of the trustee.

One place I talked to said you can set up an LLC that is a IRA trustee.  You can then be an officer of the IRA trustee and can then take physical possession in the LLCs name.  That one seemed really questionable and I wasn't willing to try it.

Don't you just love the IRS and rules designed to make you a criminal or require you to hire lawyers! Yell

Rhare,

Thank you very much for the comprehensive response.  There's obviously a strong disincentive (social engineering?) for the public to set these entities up.  That said, these gray areas sound quite perilous from a legal perspective.  Do I really want the IRS chasing me? I think one needs to contemplate the level of societal decay expected in choosing the mode of storage. I  am trying to find the happy medium between buying gold coins at a 7% markup and burying them (ultrasafe), and holding GLD which should be suitable under most circumstances....until there's a problem ( fully understand the concept of unallocated paper obligations)  BullionVault seems to be somewhere in the middle.  Holding 95% of my net worth in a few bank safety deposit boxes seems pretty risky too (theft from bank employees...I know some of them!) .  I would be very curious to know how people choose to diversify their gold "stockpiles". CM has mentioned that he holds coins and bullion off site and participates in Bullionvault.  I'm interested to know if people tend toward one mode, or actually spend the money to use many.  My inclination would be to divide a hypothetical 100K as follows:  50% physical hidden on site (coins and bullion, I get nicked for the 3-7% over spot but it's in hand)  30% BullionVault (cheaper to buy, but no guarantee you'll ever see it again despite the best intentions) and 10% GLD ETF (easy access but still a 40 basis point management expense and no claim if the TSHTF).  Perhaps 50% of the BullionVault allocation would be silver.

Lastly,  I'm still looking for a way to get EXISTING holdings out of a Fidelity Roth IRA into a cost effective gold solution.  I'm worried that setting up an LLC may cause future problems.  Anyone else have any experience with Rhare's method?  Maybe I shouldn't be putting any additional funds into a Roth IRA? I'm paying the taxes up front anyway so maybe I should just receive it as income and dollar cost average into one of the modes listed above from a non-IRA account.  Granted I would give up some special provisions of the Roth (loans, etc.). Any one see this as a viable alternative?   

Thanks,

Rob

robbie's picture
robbie
Status: Bronze Member (Offline)
Joined: Jul 16 2008
Posts: 91
michaelandolga wrote: One

michaelandolga wrote:

One needs to remember that there is no "perfect" way to hold gold or precious metals - every method of gold ownership is susceptible to entirely valid critiques or "down sides."  In that respect, both Bullion Vault and James Turk's vehicle, GoldMoney, both share the same inherent deficiency.  Alan Greenspan is on record as having said that gold is considered the "ultimate form of payment."  What he is referring to is the actual metal itself - not a promise to deliver the metal (however good or reliable that promise may be).  Whatever strenuous objections to the contrary that might emanate from either Bullion Vault or GoldMoney about the reliability of their services (and I have no reason to doubt the veracity of any of it), those promises will never and can never live up to the standard of physical metal in one's own possession.  Despite the best of intentions, promises are merely that.  While often kept, in extraordinary times promises are sometimes not kept.  On such an occasion, will it matter to you, the intended beneficiary of one of these promises, whether the promise was not kept for justifiable or unjustifiable reasons?  I doubt it.  At the end of the day you simply want your metal. 

Ironically, it is for just such a reason - the abrogation of promises - that precious metals exist in the first place.  Because of this, one might even say that Bullion Vault and GoldMoney (as well as all manner of other "paper gold" contrivances such as ETFs) are antithetical to gold. 

While I think Bullion Vault and GoldMoney have a place in the modern world, it's important to distinguish that they are not - nor will they ever be - replacements for real metal in one's possession (which, not surprisingly, has its own set of down sides).

Well said, and not only because I agree completely and poached a line from you for my prior post below :).

I'm curious to know if you ultimately decided to hold gold in the diversified vehicles listed above, or decided on a 100% in hand allocation 

despite the downsides alluded to above and increased cost.  

Rob

SailAway's picture
SailAway
Status: Gold Member (Offline)
Joined: Aug 11 2010
Posts: 352
Re: Still trying to get my money out of a Fidelity IRA and into

robbie wrote:

rhare wrote:

robbie wrote:

Fidelity says a self-directed IRA (Roth, etc.) may only hold gold coins, not bullion.  Can you point me to a resource for learning more about setting up a BV account in a self-directed IRA?

Fidelity seems to tell people that, but the IRS Publication 590 says on page 48, under Investment in Collectibles (emphasis mine):

IRS Publication 590, page 48, Investment in Collectibles wrote:

If your traditional IRA invests in collectibles, the amount invested is considered distributed to you in the year invested. You may have to pay the 10% additional tax on early distributions, discussed later.

Any amounts that were considered to be distributed when the investment in the collectible was made, and which were included in your income at that time, are not included in your income when the collectible is actually distributed from your IRA.

Collectibles. These include:

  • Artworks,
  • Rugs,
  • Antiques,
  • Metals,
  • Gems,
  • Stamps,
  • Coins,
  • Alcoholic beverages, and
  • Certain other tangible personal property.

Exception. Your IRA can invest in one, one-half, one-quarter, or one-tenth ounce U.S. gold coins, or one-ounce silver coins minted by the Treasury Department.  It can also invest in certain platinum coins and certain gold, silver, palladium, and platinum bullion.

If you look at Notice 98-49, it says, on page 5, question C-4 (emphasis mine):

Notice 98-49 wrote:

Section 304 or TRA 97 amended 408(m) of the Code to permit IRAs to invest in certain platinum coins and in gold, silver, platinum or palladium bullion, provided the bullion is in the physical possession of an IRA trustee.

So the question is what does it mean to be in the physical possession of an IRA trustee?  The Self Directed IRA folks I use have an arrangement with a Brinks storage facility.  Any bullion purchased is stored in the facility under the IRA trustees name.  I hope this is valid.  I may just purchase Eagles for any further investments to be on the safe side since it appears the rule does not require the listed coins to be in possession of the trustee.

One place I talked to said you can set up an LLC that is a IRA trustee.  You can then be an officer of the IRA trustee and can then take physical possession in the LLCs name.  That one seemed really questionable and I wasn't willing to try it.

Don't you just love the IRS and rules designed to make you a criminal or require you to hire lawyers! Yell

Rhare,

Thank you very much for the comprehensive response.  There's obviously a strong disincentive (social engineering?) for the public to set these entities up.  That said, these gray areas sound quite perilous from a legal perspective.  Do I really want the IRS chasing me? I think one needs to contemplate the level of societal decay expected in choosing the mode of storage. I  am trying to find the happy medium between buying gold coins at a 7% markup and burying them (ultrasafe), and holding GLD which should be suitable under most circumstances....until there's a problem ( fully understand the concept of unallocated paper obligations)  BullionVault seems to be somewhere in the middle.  Holding 95% of my net worth in a few bank safety deposit boxes seems pretty risky too (theft from bank employees...I know some of them!) .  I would be very curious to know how people choose to diversify their gold "stockpiles". CM has mentioned that he holds coins and bullion off site and participates in Bullionvault.  I'm interested to know if people tend toward one mode, or actually spend the money to use many.  My inclination would be to divide a hypothetical 100K as follows:  50% physical hidden on site (coins and bullion, I get nicked for the 3-7% over spot but it's in hand)  30% BullionVault (cheaper to buy, but no guarantee you'll ever see it again despite the best intentions) and 10% GLD ETF (easy access but still a 40 basis point management expense and no claim if the TSHTF).  Perhaps 50% of the BullionVault allocation would be silver.

Lastly,  I'm still looking for a way to get EXISTING holdings out of a Fidelity Roth IRA into a cost effective gold solution.  I'm worried that setting up an LLC may cause future problems.  Anyone else have any experience with Rhare's method?  Maybe I shouldn't be putting any additional funds into a Roth IRA? I'm paying the taxes up front anyway so maybe I should just receive it as income and dollar cost average into one of the modes listed above from a non-IRA account.  Granted I would give up some special provisions of the Roth (loans, etc.). Any one see this as a viable alternative?   

Thanks,

Rob

Robbie,

I used this company: http://www.pgiselfdirected.com/ to setup my self-directed 401K (with "checkbook control") last year. I know there is another CM member who uses them as well. This is exactly the method that Rhare mentioned above except that I didn't setup the LLC, it is not mandatory to do it. In a nutshell this is how it works:

1- You roll over your existing IRA/401K to your self-directed IRA/401K account. If you qualify for a 401K it's a better option. You should qualify if you or your spouse has 1099 income (self employed), otherwise it would be an IRA.

2- The account is help at a brokerage firm (like Scwhab for instance) so you have access to any investment vehicles available. But you can wire money in/out (or write checks) of the account to invest in other assets under the trust name.  I for instance opened a BV account and also bought a rental property, your option are really limitless so long as you follow the IRS rules. The main one being that you cannot benefit from the account otherwise it becomes a distribution. And any income generated by your investments must return to the account.

3- The account can be Roth or traditional (or even both at the same time) and if your are self employed you can continue to contribute within the IRS limits.

PGI Self Directed is just the legal firm that help you setup the account, there is a 1 time fee and that's it. Once your account is setup then they are out if the loop and you are in control. You can still contact them for advices if you want to. You should find most of your questions answered on their web site

I hope this help.

robbie's picture
robbie
Status: Bronze Member (Offline)
Joined: Jul 16 2008
Posts: 91
Self Directed IRA setup

SailAway wrote:

robbie wrote:

rhare wrote:

robbie wrote:

Fidelity says a self-directed IRA (Roth, etc.) may only hold gold coins, not bullion.  Can you point me to a resource for learning more about setting up a BV account in a self-directed IRA?

Fidelity seems to tell people that, but the IRS Publication 590 says on page 48, under Investment in Collectibles (emphasis mine):

IRS Publication 590, page 48, Investment in Collectibles wrote:

If your traditional IRA invests in collectibles, the amount invested is considered distributed to you in the year invested. You may have to pay the 10% additional tax on early distributions, discussed later.

Any amounts that were considered to be distributed when the investment in the collectible was made, and which were included in your income at that time, are not included in your income when the collectible is actually distributed from your IRA.

Collectibles. These include:

  • Artworks,
  • Rugs,
  • Antiques,
  • Metals,
  • Gems,
  • Stamps,
  • Coins,
  • Alcoholic beverages, and
  • Certain other tangible personal property.

Exception. Your IRA can invest in one, one-half, one-quarter, or one-tenth ounce U.S. gold coins, or one-ounce silver coins minted by the Treasury Department.  It can also invest in certain platinum coins and certain gold, silver, palladium, and platinum bullion.

If you look at Notice 98-49, it says, on page 5, question C-4 (emphasis mine):

Notice 98-49 wrote:

Section 304 or TRA 97 amended 408(m) of the Code to permit IRAs to invest in certain platinum coins and in gold, silver, platinum or palladium bullion, provided the bullion is in the physical possession of an IRA trustee.

So the question is what does it mean to be in the physical possession of an IRA trustee?  The Self Directed IRA folks I use have an arrangement with a Brinks storage facility.  Any bullion purchased is stored in the facility under the IRA trustees name.  I hope this is valid.  I may just purchase Eagles for any further investments to be on the safe side since it appears the rule does not require the listed coins to be in possession of the trustee.

One place I talked to said you can set up an LLC that is a IRA trustee.  You can then be an officer of the IRA trustee and can then take physical possession in the LLCs name.  That one seemed really questionable and I wasn't willing to try it.

Don't you just love the IRS and rules designed to make you a criminal or require you to hire lawyers! Yell

Rhare,

Thank you very much for the comprehensive response.  There's obviously a strong disincentive (social engineering?) for the public to set these entities up.  That said, these gray areas sound quite perilous from a legal perspective.  Do I really want the IRS chasing me? I think one needs to contemplate the level of societal decay expected in choosing the mode of storage. I  am trying to find the happy medium between buying gold coins at a 7% markup and burying them (ultrasafe), and holding GLD which should be suitable under most circumstances....until there's a problem ( fully understand the concept of unallocated paper obligations)  BullionVault seems to be somewhere in the middle.  Holding 95% of my net worth in a few bank safety deposit boxes seems pretty risky too (theft from bank employees...I know some of them!) .  I would be very curious to know how people choose to diversify their gold "stockpiles". CM has mentioned that he holds coins and bullion off site and participates in Bullionvault.  I'm interested to know if people tend toward one mode, or actually spend the money to use many.  My inclination would be to divide a hypothetical 100K as follows:  50% physical hidden on site (coins and bullion, I get nicked for the 3-7% over spot but it's in hand)  30% BullionVault (cheaper to buy, but no guarantee you'll ever see it again despite the best intentions) and 10% GLD ETF (easy access but still a 40 basis point management expense and no claim if the TSHTF).  Perhaps 50% of the BullionVault allocation would be silver.

Lastly,  I'm still looking for a way to get EXISTING holdings out of a Fidelity Roth IRA into a cost effective gold solution.  I'm worried that setting up an LLC may cause future problems.  Anyone else have any experience with Rhare's method?  Maybe I shouldn't be putting any additional funds into a Roth IRA? I'm paying the taxes up front anyway so maybe I should just receive it as income and dollar cost average into one of the modes listed above from a non-IRA account.  Granted I would give up some special provisions of the Roth (loans, etc.). Any one see this as a viable alternative?   

Thanks,

Rob

Robbie,

I used this company: http://www.pgiselfdirected.com/ to setup my self-directed 401K (with "checkbook control") last year. I know there is another CM member who uses them as well. This is exactly the method that Rhare mentioned above except that I didn't setup the LLC, it is not mandatory to do it. In a nutshell this is how it works:

1- You roll over your existing IRA/401K to your self-directed IRA/401K account. If you qualify for a 401K it's a better option. You should qualify if you or your spouse has 1099 income (self employed), otherwise it would be an IRA.

2- The account is help at a brokerage firm (like Scwhab for instance) so you have access to any investment vehicles available. But you can wire money in/out (or write checks) of the account to invest in other assets under the trust name.  I for instance opened a BV account and also bought a rental property, your option are really limitless so long as you follow the IRS rules. The main one being that you cannot benefit from the account otherwise it becomes a distribution. And any income generated by your investments must return to the account.

3- The account can be Roth or traditional (or even both at the same time) and if your are self employed you can continue to contribute within the IRS limits.

PGI Self Directed is just the legal firm that help you setup the account, there is a 1 time fee and that's it. Once your account is setup then they are out if the loop and you are in control. You can still contact them for advices if you want to. You should find most of your questions answered on their web site

I hope this help.

Thanks very much! I'll look into it.

Rob

robbie's picture
robbie
Status: Bronze Member (Offline)
Joined: Jul 16 2008
Posts: 91
Self-directed IRA setup

So if I'm understanding this correctly, metal held through BullionVault would not be prohibited because one is NOT technically holding "metal" in the self-directed IRA?   Rob

What are Prohibited Investments?

The Internal Revenue Code does not specifically
authorize investments within an IRA; rather, the code outlines what types of
investments are not allowed. The Prohibited Investments
include:

Artwork Rugs Antiques Metals Gems Stamps Coins Beverages Stock in a S-Corporation And certain other tangiblepersonal property
SailAway's picture
SailAway
Status: Gold Member (Offline)
Joined: Aug 11 2010
Posts: 352
Re robbie: Self-directed IRA setup

When I setup the 401K I discussed with the attorney about holding PM using BullionVault or GoldMoney and it was not a problem. The account is open under the 401K trust name and it seems to be enough to meet the IRS rule.

According to the attorney anything that is not prohibited is allowed. There are also the notion of "prohibited transactions" that essentially defines how you cannot (or some family members) benefit from the plan until you reach the distribution age.

nolas's picture
nolas
Status: Member (Offline)
Joined: Apr 21 2011
Posts: 2
the American citizens' gold in danger of confiscation

As in 1933, the USA are financially in great danger, investors are encouraged to buy gold and the price of gold is rising . But we must remind investors of a historical event mentioned by only a few History books, the worst trick a former US president could play on the American citizens :
           “The Gold Confiscation Of April 5, 1933
From: President of the United States Franklin Delano Roosevelt
To: The United States Congress
Dated: 5 April, 1933
Presidential Executive Order 6102
Forbidding the Hoarding of Gold Coin, Gold Bullion and Gold Certificates By virtue of the authority vested in me by Section 5(b) of the Act of October 6, 1917, as amended by Section 2 of the Act of March 9, 1933, entitled

An Act to provide relief in the existing national emergency in banking, and for other purposes~',
in which amendatory Act Congress declared that a serious emergency exists…”
 
In 1933, the USA was in danger of financial bankruptcy . Thus gold was confiscated from the citizens  for a small money compensation, reduced to nothing by inflation, and the country’s economy could rebound at the expense of the citizens .
Today, the US economic circumstances are the same as in 1933 . In 2011, the economic and financial situation of the USA and all the Western countries is similarly in danger and Roosevelt’s Gold Confiscation Act is still in use ..The question is not whether the Federal Government will use it but when they will use it .
Should sensible investors buy gold likely to be legally confiscated at any time to save the Federal Treasure ?

 

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