BullionDirect Bankruptcy: Buyer Beware With Gold Storage Companies

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2015goldBullionDirect.com sold gold and silver bullion and even offered to store it in a vault for you for free. How nice of them. Unfortunately, they lied. From a Austin American-Statesman article with lots of customer interviews:

By the time auditors and lawyers got access to Bullion Direct’s 14th-floor offices six weeks ago, there were only a handful of gold and silver coins in an office safe. A second vault it had recently rented held only slightly more.

An estimated $30 million in cash, metal bullion and valuable coins, meanwhile, had vanished.

Here’s another snippet from a CoinWeek article (more detailed updates here):

Bullion Direct filed a declaration that stated that “when a customer placed an order, the precious metal was not actually purchased unless the customer agreed to take actual delivery of the product.” In other words, they never bought the metal customers purchased if it was to be stored.

This story is not about whether or not to buy gold. The lesson is that if you buy physical gold from a dealer and they either never deliver it to you or they say they’ll store it for you but the vault is really empty and say “oops we’re bankrupt!”… there is no government insurance mechanism that guarantees your assets. They can say they have “layers of insurance” and “regular, independent audits”, but they could also be lying to your face. If you have your gold stored somewhere, do you know the actual name of the insurance company they are using, and have you verified with that company about what exactly that policy covers?

From what I can tell, you could just replace “gold storage” with “pink teddy bear storage” to get an approximate idea of your level of protection. You can sue for your lost teddy bears, but if the company is broke and criminally stole your money, you may not get much if anything back even after liquidating any remaining assets.

This is very different from keeping assets under set limits at an FDIC-insured bank or holding regulated securities at an SIPC-insured brokerage firm. If you hold cash at a FDIC-insured bank and it fails, you’ll get your money back (subject to limits of $250k per account designation). If you hold Vanguard mutual funds in a TD Ameritrade account, those shares are also structured as to be protected if either Vanguard or TD Ameritrade has financial problems. (To be clear, your number of shares is protected up to limits, but the market value of those shares is not guaranteed.)

If I was to buy gold, so far my plan would be to buy 1 oz. American Eagle coins direct from a US Mint Authorized Purchaser, and then test them again myself with this Fisch gold coin tester. There is a premium over spot price for coins, but it would improve liquidity. Perhaps it is even worth paying the 3% markup for paying with credit card, especially if you can earn at least 2% in cash back or points, and then chalk up the net 1% markup as a form of purchase protection. Of course, storing it yourself has its own set of potential issues.

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Comments

  1. The reason why we buy our bullion gold / silver personally and store it ourselves. I need to SEE what I purchase. Then we can store it in a near bank, but we do get our hands on the metals first.

    Nasty news, that’s for sure 🙁

    • And, when that bank declares a bank holiday and closes its doors…then what do you do? FDIC does not insure (and actually has no money to pay anyway) safe deposit contents. Also, once a bank declares a holiday, everything in all safe deposit boxes will be opened by the bank and any contents of value with magically disappear.

  2. The whole idea of owning gold is to insure against the craziest kinds of financial chaos, and for it to serve that purpose you really need to physically possess it yourself.

    Also, it might be a better idea to buy a 99.99% gold bullion coin such a Canadian Maple Leaf, rather than a 91.67% gold American Eagle – the purer the gold, the harder to fake.

    http:/www.goldcoinbalance.com/tungsten-gold-coins

    • They are both 1 ounce of gold. When it comes to market value they hold the same value. One is 22kt and one is 24kt.

  3. I just can’t own gold because it seems like insurance against a very narrow set of outcomes, namely that the monetary economy totally breaks down but somehow people are still producing things and willing to accept a heavy, shiny yellow metal in exchange for goods and services. To my mind, if all hell really breaks loose, fresh water, food, and arms are going to be the medium of exchange. I just think that if currency becomes worthless, there is a 98+% chance that gold is no longer desirable or if it is, the government confiscates it like they did in the 1930s.

    BTW I’m not a prepper who is stocking up on water, food, and guns, either; almost all of my wealth is tied up in bank accounts and securities.

    • Brad Ford says:

      Agree completely.

      • I agree but keep in mind that when the hyper-inflation occurred in Wiemar Germany from 1921 through 1924 from printing too much currency (not money….paper currency is not money), which is exactly what the USA is doing now, you could buy a BUILDING with an ounce of gold! Nobody is going to be attempting to buy milk, bread, food, or gas with a shiny coin. But, once the melee and chaos subsides, which it always does, better to own hard assets, buildings and land, than to be fed well and broke.

        But, I agree that first comes water, food, protection and shelter FIRST.

  4. Totally agree with Andy. I always joke that the only gold I would buy would be in the form of gold ammunition. Beans will be more valuable if the sh*t hits the fan in a really big way.

    • I’m hardly a prepper or goldbug, but I can imagine “disaster” scenarios, short of apocalypse, where having some physical gold would be useful. For an historical example, consider someone attempting to flee eastern Europe in the run up and beginning of Second World War. Bulky physical goods (ammunition, food) would be impossible to take, if even obtainable in the first place. Bank accounts and securities would not necessarily be accessible and you probably wouldn’t be able to convert these into a local currency upon arrival in a new country. Gold could be easily carried on your person and was, and is, universally recognized as valuable.

      • For such a situation simply keep your assets both in the country and off-shore in several forms (banks, shares, real estate) and locations around the world. Than you are more or less safe always, but you’ll need HUGE amount of money. With small amount of money you never safe.

    • You want to store $1.5M worth of guns, ammo, and beans somewhere for me? Some of us have more in life than a paycheck and plan beyond next month. Think more, write less.

  5. Rick Pyle says:

    Gold coins are an insurance policy against hyperinflation, the decline of the international USD standard, and a rapidly growing unsustainable US Debt. They are easily hidden and extremely portable. Just ask the Jews and others who managed to escape the Nazis before WW2 how much of a lifesavers their gold proved to be ( great for bribing soldiers, cops, etc., as well in difficult circumstances). I like Silver as well for smaller purchases, but it can be a pain if you have to bug out.

    Please understand, It’s not a matter of if the dollar will lose further buying power, but only WHEN. Heck, the once Almighty dollar has lost 72% of its buying power just since we got off the last remaining elements of the gold standard in 1972. A sharper decline in the future seems an economic certainty as our economy stagnates and our spending continue unabated. Too many dollars chasing too few goods. The FED can rig the deck for a while and they have, but eventually the piper must be paid! When the panic hits and the public realizes green paper is just green paper, precious metals will be a welcome part of your preparations.

    Yes, have your food, water, and medical supplies (order antibiotics and med books for your fish ?) for at least a month prepped. That’s just good sense. Short periods of disorder or natural disasters are very real risks we all face. However, please stop thinking your preps alone will get you through a true apocalypse, whether it be nuclear, bacteriological, etc. If 98% of mankind is wiped out, the odds of your individual survival are far too long to seriously dwell upon. I assure you the genuine reality of a verifiable apocalypse will make the world of “The Walking Dead” seem like a picnic on a sunny Summer day. (See Europe and Asia during the Black Death).

  6. 1.) Beans
    2.) Bullets
    3.)Band-Aids
    4.) Shelter (i.e. arable, defensible land; retreat; bug-out location…whatever you want to call it).
    5.) Communications
    6.) Tools
    7.) Seeds
    8.) Books, pamphlets, instructions (Information)
    9.) Hard Assets (e.g. Gold, Silver etc.)
    10.) A Plan (maybe this should be higher up in the ranking)?
    11.) Something to believe in that will sustain you when times get rough…and they will. This also may be higher up in the order of things. YMMV).

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