Your gold is safe; it's somebody else's that's missing

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SamLinder's picture
SamLinder
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Your gold is safe; it's somebody else's that's missing

Mint moves to halt possible 'run' on gold

By Ian MacLeod , The Ottawa Citizen June 12, 2009
OTTAWA — To halt a possible “run” on the gold it safeguards for private businesses, the Royal Canadian Mint is reassuring customers their deposits are fully accounted for and in secure vaults as the investigation continues into as much as $20 million in lost precious metals.

Since the scandal broke last week, some precious metals market advisers have been trying to instigate “some kind of a run” on the custodial accounts of the Ottawa mint and other mints around the world, said Jon Nadler, senior metals market analyst with with Montreal-based Kitco, one of the world’s leading precious metals bullion dealers.

“I cannot name names, but I’ve seen a number of forums and blogs and newsletter alerts from people who claim to be market analysts and saying, ‘You should take delivery of everything that’s in storage, no matter who you keep it with because of things like this,’” Nadler said in an interview Friday, calling the tactic “pathetic.”

The federal government this week ordered the mint to call for an RCMP criminal probe, after a four-month external audit was unable to reconcile the unaccounted-for gold and other precious metals at the mint’s Sussex Drive headquarters. Mint insiders tell the Citizen the missing metals could be worth as much as $20 million. The RCMP continues to review the request for an investigation. The audit findings are expected to be made public next week.

In the cut-throat world of international bullion refining and minting, any loss of confidence in the mint’s reputation as a world-class operation could threaten future business.

For Kitco, which stores some of its gold and precious metals at the mint as well as some of its clients’ metals, the unaccounted-for gold mystery is “clearly not an issue,” said Nadler.

Letters, he said, were sent to the company and other custodial customers June 4, a day after the Citizen broke the story, in which mint chief operating officer Beverley Lepine assured them, “all individual customer holdings and metal deposits entrusted with the Royal Canadian Mint are secure and have been fully accounted for.”

Whatever the outcome of the audit and anticipated police probe, people knowledgeable with mint operations say it’s unlikely the gold was stolen, and certainly not all at once.

Referring to the blockbuster 2003 gold-heist movie The Italian Job, Nadler said, “people tunnelling under vaults and making off with mass quantities of gold and walking out the front door, this just doesn’t happen.”

In a Friday blog posting on the website of the International Business Times, Nadler wrote: “Some over-zealous alarmists need to get a grip and learn how vaults, insurance policies, and such operate in the real world. Until then, we can only call them saboteurs. Anyone who listens to them is sadly misinformed.”

In the later interview, he said, “I can appreciate this atmosphere of post-Madoff mania, but at the same time, when you have a government entity that you’re dealing with and they have a hundred years of track record under their belt, your worry level is certainly misplaced. We’re quite comfortable sleeping at night and so are our clients.”

Meanwhile, mint chairman James Love says one possible, but unconfirmed, explanation for the mystery is a programming problem with a new computer system used to track the mint’s precious metal reserves.

In a media interview this week that attracted scant coverage, Love said, “it’s still possible that it is some sort of a programming error in that system. Obviously frauds and security breaches happen, so we haven’t ruled anything out. But we simply don’t believe that that’s the sort of thing that happened.”

Further, the issue may be traced to a decision not to re-refine an estimated 90 tonnes of slag for residual gold not captured during the initial refining process. Because of the huge demand for gold last year, there was no time, explained Love.

“An estimate was made at the year end as to what the value of the gold in this slag would be, and it was thought that this could explain a significant portion of this reconciliation difference. The amount of gold that was determined to be in that slag was significantly higher than the estimate that was originally used,” he said in the report.

“That went a significant distance in reconciling the rolling inventory to the physical count, but certainly not far enough from our point of view.”

It’s not clear what happened to the slag.

The initial discrepancy at issue was less than 0.5 per cent of the gold that had flowed through the facility last year, Love said.

Nadler said though he is not privy to the external audit findings, “I’m reasonably sure that it’s an accounting issue and literally a reconciliation issue, where a shipment was either short or diverted or what have you. Even if it’s proven to be actual malfeasance, I’m sure that the coverages that they have in place are ample to make (up) any particular shortfall.”

Frank Bonomo's picture
Frank Bonomo
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Re: Your gold is safe; it's somebody else's that's missing

Which is it - vaults being secure and trustworthy or not? The 6/14 Daily Digest has a link to Jim Sinclair, who recommends (urges) everyone to take delivery of PMs from vaults. This is a big deal as my vaulted PMs are within a self-directed IRA, and of course taking delivery means taking a taxable distribution.

Thank you for any insight others might have on this Sinclair/Nadler dichotomy.

Also, I have looked into insurance for one depository recommended by my IRA administrator and have questions about what they do not cover and am curious as to others' experience with insurance carried by depositories:

  • All risks of physical loss or damage coverage, means theft, fire storm, accidental damage, malicious damage and any other form of physical loss or damage.
  • Your consignments are not covered for loss or damage that results from wear and tear, deterioration, moth and vermin, infidelity or theft by employees, directors and officers, mysterious disappearance and losses only discovered by reason of stocktaking, loss of market or delay and any consequential loss, loss or damage whilst the material is undergoing any form of process, loss or damaged caused by sonic bangs, radioactive contamination, chemical, biological, bio-chemical or electromagnetic weapons, terrorism, cyber attack.
  • For values up to USD 35M at the premises.

Kind regards,

Frank

 

 

Ken C's picture
Ken C
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Re: Your gold is safe; it's somebody else's that's missing
Frank Bonomo wrote:

Also, I have looked into insurance for one depository recommended by my IRA administrator and have questions about what they do not cover and am curious as to others' experience with insurance carried by depositories:

  • All risks of physical loss or damage coverage, means theft, fire storm, accidental damage, malicious damage and any other form of physical loss or damage.
  • Your consignments are not covered for loss or damage that results from wear and tear, deterioration, moth and vermin, infidelity or theft by employees, directors and officers, mysterious disappearance and losses only discovered by reason of stocktaking, loss of market or delay and any consequential loss, loss or damage whilst the material is undergoing any form of process, loss or damaged caused by sonic bangs, radioactive contamination, chemical, biological, bio-chemical or electromagnetic weapons, terrorism, cyber attack.
  • For values up to USD 35M at the premises.

Kind regards,

Frank

 

 

 

What kind of insurance is that?? They won't cover it if the people holding it are thieves.

 

Ken

 

Frank Bonomo's picture
Frank Bonomo
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Joined: Mar 8 2009
Posts: 4
Re: Your gold is safe; it's somebody else's that's missing

That's my reaction as well. It pays to look at the details; I have not put PM here yet but was planning on it until I saw the certificate of insurance.

Thank you, Ken.

CB's picture
CB
Status: Gold Member (Offline)
Joined: Mar 18 2008
Posts: 365
Re: Your gold is safe; it's somebody else's that's missing

Frank, I find the use of the phrase "mysterious disappearance" particularly intriguing - seems it could cover a multitude of sins....

SamLinder's picture
SamLinder
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Joined: Jul 10 2008
Posts: 1499
Re: Your gold is safe; it's somebody else's that's missing
Frank Bonomo wrote:

Which is it - vaults being secure and trustworthy or not? The 6/14 Daily Digest has a link to Jim Sinclair, who recommends (urges) everyone to take delivery of PMs from vaults. This is a big deal as my vaulted PMs are within a self-directed IRA, and of course taking delivery means taking a taxable distribution.

Thank you for any insight others might have on this Sinclair/Nadler dichotomy.

Kind regards,

Frank

 

Frank,

You raise an excellent question - one that has been discussed on other threads. The $64,000 answer is that it's up to you as to how much risk you want to take vs. how much pain you can stand tax-wise.

Some folks have actually cashed in their IRA's or 401k's and taken the tax hit in order to get access to their money now in case it becomes worth much, much less later. Some of those folks then bought PM's and took immediate physical possession as recommended by Jim Sinclair.

My own personal decision was to cash in some of my IRA's, but not all. You might say I've got a foot in both camps. I took some minor tax pain in order to get my hands on some PM's immediately. However, it would be way too painful to cash my remaining IRA's this year. So, I still have some money at risk if the dollar falls through the floor.

Based on all the financial shenanigans that have come to light, I just don't trust any financial institution at all. I'd rather have physical bullion under my mattress than trust it to any bank or vault. If there is ever a bank holiday or a new PM confiscation occurs, you can probably kiss your PM's goodbye.

That's my take on the situation. I hope it helps you come to a decision you are comfortable with. Remember what CM says, "Trust Yourself."

Frank Bonomo's picture
Frank Bonomo
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Joined: Mar 8 2009
Posts: 4
Re: Your gold is safe; it's somebody else's that's missing

Sam, thanks so much for your reply.

I, too, cashed in IRA $ and purchased physical PMs, and like you I still have money left in an IRA. I have been with Fidelity and recently discovered self-directed IRA's (EnTrust New Directions IRA in Layfayette, CO is the one I selected - there are others). Through this vehicle one can invest in all kinds of assets: PMs, foreign assets, real estate, private offerings - way beyond stocks, bonds, and ETFs.  Yet the PMs have to be vaulted, so hence my question.

Best regards,

Frank

 

SamLinder's picture
SamLinder
Status: Diamond Member (Offline)
Joined: Jul 10 2008
Posts: 1499
Re: Your gold is safe; it's somebody else's that's missing
Frank Bonomo wrote:

Yet the PMs have to be vaulted, so hence my question.

Best regards,

Frank

Hi Frank,

That's the dilemma that only you can answer. If things don't collapse, you're probably ok. If they do collapse, will you be able to retrieve your PM's? Perhaps or perhaps not.

This is where your appetite for risk slams up against your appetite for painful taxes. I wish I could tell you a magic answer. For me, my appetite for very painful taxes is overridden by my willingness to risk leaving my IRA's intact for now. If I've guessed wrong, I'm screwed.

Good luck with your choices, Frank. I hope it works out for the best for you - whichever option you choose.

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