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How To Hold Precious Metals In A Practical And Affordable Way

05 Aug
How To Hold Precious Metals In A Practical And Affordable Way

Chocolate Gold

Cash may be king, but gold trumps it when it comes to hedging inflation and the general devaluation of paper money. Many investment advisors suggest clients hold 10% of their wealth in precious metals. One I know has in recent years been recommending that his clients hold 50% and more of their wealth in gold.

The reasons for holding gold are many, important, well-known, and not my agenda in this article. My agenda here is to point out that, whatever the reasons you hold gold, my recommendation is that you hold it as physical gold. Paper gold— gold certificates, ETFs, etc.—is really just another form of currency, a piece of paper representing something that you may or may not be able to cash in when you decide you want to. Physical gold is the only way to know you’ll have access to the gold you own and the gold you need.

However, if your reason for holding gold is concern about another global financial meltdown or the collapse of the U.S. dollar or euro, then you should recognize that storing a bunch of it in a vault in, say, Switzerland or anywhere else where you aren’t living means you may not, in fact, have access to your gold when you need it. Certainly not easy access.

Thinking through the doomsday scenario, if the world financial markets have collapsed, how are you going to pay for transportation to get to your gold in the vault in Switzerland? Probably someone will come up with a system to allow you to “borrow” against your gold holdings. But having the gold with you is a much more reliable approach. Are you going to want to figure out a way to pay for a flight to Switzerland to collect some of your gold so that you can return home and go shopping for groceries?

Holding some physical gold where you live seems to me the only practical approach. Still, though, how will you pay for small purchases (less than the value of your 400-gram or 1-kilo gold bar…or even your 1-ounce Kruggerand)? Slicing off a small piece of a gold bar could work if you’re dealing with someone who has scales and who trusts the purity of the gold you’re presenting, but then your bar has lost its original integrity.

It’s these issues to do with the day-to-day utility of physical gold that have always stumped me. Definitely, holding gold is an important part of anyone’s portfolio. However, if the world reaches full crisis mode and you need to find a way to feed yourself and your family, how will your vaulted gold help you?

Like Chocolate, But Better

The solution to this scenario was presented to me by a gold broker we work with in Panama who visited recently to deliver a small 5-gram ingot of gold that I had ordered. It was something to put in my office safe to have “just in case”…more of a novelty than anything else. When he delivered it, he told me about some new products he and his business partner had sourced, two of which allow you to hold a reasonable amount of physical gold or silver as an emergency plan in case of absolute financial meltdown.

They call the products “chocolate gold” and “chocolate silver.” Appropriate names, as that’s what these bars of metal resemble. They are pre-indented, like chocolate bars, so that you can easily break them into fixed smaller pieces that you can then use as currency in case of emergency. And that’s what you should consider these specific metals products—“break open in case of emergency” packets.

The chocolate gold bars are 50 grams consisting of 50 1-gram detachable pieces. The entire bar comes in a sealed plastic package with an assay certificate and a serial number. In case of emergency, cut open the plastic and break off a 1-gram bar to take to pay the grocer.

At today’s gold prices, a 50-gram bar is 1.61 troy ounces and worth about US$2,500. That makes a 1 gram bar worth about US$50, which is a much more practical value when it comes to carry a 50-gram bar with you when traveling or easily store some in your safe, under your mattress, or buried in your back yard (the plastic covering should protect the gold from oxidizing in the ground).

Pedigree Chocolate

The bars are minted by the Swiss refinery Valcambi, founded in 1961. Credit Suisse bought 80% in 1967 and the remaining 20% in 1980. Credit Suisse sold the company in 2003 to a group represented by the original founders of Valcambi and Newmont Mining Corporation, which is the world’s second-largest gold producer.

Valcambi is a “London Good Delivery” refiner accredited on all major precious metals exchanges, including in Zurich, New York, and Tokyo.

The pedigree of Valcambi is solid, making their products easily resellable on the metals markets. They came up with the chocolate gold product in April 2011 and the chocolate silver product in October 2011.

The dealer in Panama who is offering these products also offers other gold and silver products, as well as platinum and palladium. Along with the various precious metals options from coins to ingots to bars, Noble House Group also offers storage options for your non-emergency metal investments.

I’m not an alarmist, and I’m not a doomsayer. I’m a pragmatist who likes diversification and options. These “chocolate” metals products offer many benefits, from an inflation hedge to usability should crisis hit. They could replace some of the cash sitting in your safe at home, and they are a very practical way to start diversifying your wealth into precious metals if you don’t have enough cash to buy a more typical 400-gram bar of gold (which runs about US$20,000 at today’s values).

With some of this chocolate metal sitting in your home or office safe, should doomsday arrive, you should be able to feed your family while you figure out your next steps.

Lief Simon