Gold Bullion: Why You Should Buy Now… and How

Recently, The New York Times’ Paul Krugman called attention to a curious development in global markets. The price of gold, he noted, tends to move opposite to “real” interest rates… but not lately.

Real interest rates are the difference between inflation and bond yields. When inflation is higher than the yield on a 10-year treasury bond, real interest rates are negative. Investors lose money by holding treasuries, so they buy gold instead. That pushes up its price.

Conversely, when real interest rates are in positive territory, the gold price falls as investors move back into treasuries.

But that pattern has recently fallen apart. Real interest rates have moved into positive territory extremely quickly by historical standards, and yet the gold price is rising.

Krugman believes the collapse of cryptocurrency prices over the last year or so has caused many people to abandon crypto as a hedge against inflation (precisely the role “Satoshi Nakamoto” envisaged for Bitcoin when he created it). Crypto buffs have moved their proceeds into gold, boosting its price, even though real interest rates are rising. After all, the last thing crypto buffs would do is buy treasuries, the ultimate symbol of the dreaded “fiat currency.”

I’ve never been a crypto bull. Although the underlying blockchain technology has promise, the only crypto coins likely to share in that future are those that generate yield based on real economic usefulness. But as many people are beginning to realize, that usefulness is still far in the future.

I agree with Krugman that crypto’s recent tarnishing is probably causing gold to shine once again. The good news is that you can take advantage of gold’s resurgence while keeping the privacy that attracts people to cryptocurrencies.

There’s Gold… and Then There’s Bullion

Let’s get one thing clear… if you’re acquiring gold as a hedge and investment, you want bullion. (The same applies to other precious metals like silver and platinum.) “Bullion” refers to a precious metal that’s been refined to a high state of purity. It can take the form of bars, wafers, plain rounds, or minted coins.

“If you’re acquiring gold as a hedge, you want bullion.” Whatever the type, their main purpose is to be a store of value. Even minted coins with a face value in currency, such as a U.S. Gold Eagle, are held for their intrinsic value, which derives from their weight and purity.

By contrast, “numismatic” gold or silver coins are held for their collectible value, which typically exceeds the value of their metal content. Their purity is usually less than bullion.

Although the IRS treats bullion and collectables the same when it comes to taxes—they’re both considered capital assets and taxed on capital gains—you can hold bullion gold in a retirement account, but not collectible coins.

Getting It

Many people like cryptocurrencies because they promise anonymity and ease of trade. You can buy and sell them online, and thanks to blockchain technology, you can do it anonymously.

You might think switching to gold as a hedge against inflation or potential economic trouble means giving up privacy and security. After all, if you buy more than $10,000 worth of gold bullion in cash from a U.S. dealer, by law they must report it to the government (so, if you had invested $250,000 in gold bullion bars and keep them in your home safe, the IRS would know about it).

And there’s always the precedent of the 1933 law that confiscated all privately held gold in the U.S. Who knows what a panicking U.S. government might do in a real pinch?

But there’s a secure and more private way to buy gold… many companies sell bullion metals online. You simply log on to the merchant’s website, choose the bullion you want, and pay for it.

At first blush, that doesn’t sound like it solves any problems. If the company is in the U.S., they still must report you to the IRS. And it’s still vulnerable to confiscation if it should ever come to that.

But the availability of online gold trading opens the door to a strategy many people I know have used to secure their wealth—one you can easily apply as well—all from the comfort of your own home, wherever that may be.

Keeping It: Safely, Securely, and Anonymously

The key to this strategy is to practise the same diversification we recommend here at International Living—but apply it to your wealth instead of yourself.

Several offshore jurisdictions offer favorable legal and tax treatment to foreign investors in gold and other precious metals. In those countries, firms have emerged to offer services to people like us who want to store our wealth safely out of the prying eyes of our own government.

Typically, these companies operate ultra-secure “treasury grade” vaults. Such vaults are designed and built to the same exacting standard used by sovereign governments to store their own bullion holdings (like Fort Knox in the U.S.).

But the crucial innovation is that many of these companies have expanded to include gold and other precious metal brokerage facilities to foreign clients. Not only will they store your gold, they’ll also sell it to you and sell it for you, should you decide to do so.

Thanks to this innovative combination, you can easily buy gold online and have it stored in a secure treasury-grade vault in a foreign jurisdiction.

Safety and Security Under the Southern Cross

One of my favorite offshore vault companies is New Zealand Vault (NZV), with branches in Wellington and Auckland. NZV, the country’s oldest vault business, was founded in 1931. Its treasury-grade vaults are on par with those used by sovereign reserve banks, and guarded 24/7. It’s fully insured by Lloyds of London.

NZV is privately owned and independent of the banking sector and government. Its corporate finances aren’t mixed up with other business lines. NZV’s management are all ex-senior executives from the banking industry. They’re also a fully accredited broker in gold, silver, and paltinum bullion, in both coin and bar form. Gold comes in various sizes, from one-ounce wafers to kilogram bars. Bullion coins include one-ounce Australian Philharmonics and Kangaroos, and Canadian Maple Leafs. All metals are quoted in U.S. dollars.

Opening a safety-deposit box and depositing your bullion at NZV is simple. Here’s how it works:

• Step 1: Complete NZV’s online registration. The account can be in your own name, or under a limited liability company (LLC), trust, or other legal vehicle, whether U.S.-based or offshore.
• Step 2: Order as much bullion as you like through NZV’s secure online-payment engine, by credit card or bank transfer.
• Step 3: Get a copy of your driver’s licence AND passport or other photo ID, as well as a utility bill or bank statement with your current residential address on it. Have them notarized. If you’re opening an account under the name of a an LLC or trust, you will need documentation relating to the director or trustee.
• Step 4: Send the original notarized copies to NZV within 30 days.

You don’t have to buy gold from NZV. If you already own some, you can send it to them with the assistance of Crowe Australasia, which is part of the FINDEX group.

Crowe Australasia can do much more for you besides transporting existing gold holdings to Wellington. An NZV safe-deposit box can only be opened with two keys—one for the client and one for NZV. But NZV can’t access the client’s safety-deposit box without the client’s key, and vice versa.

If you aren’t in New Zealand, a local representative of Crowe Australasia will personally deposit your bullion into your box, whether it’s purchased via NZV or shipped in, and confirm in writing that it’s securely stored as agreed. They’ll hold the key to your box in the safe custody of their own NZV box and cooperate with the company to open your box when you authorize it.

Of course, as the primary box holder you can nominate other people to have access to your safe-deposit box, such as an attorney or trustee. In the event of the death of a sole hirer of a safe-deposit box, the safe-deposit box won’t be accessible to anyone other than the legal representative appointed by your estate.

NZV can help move your existing gold holdings to their vaults using the logistics department of Scottsdale Mint, based in Scottsdale, Arizona. They organize everything, including labels, packing instructions, and pickup.

Annual storage costs are $69 a year for boxes holding up to 10 kilograms. For larger holdings, particularly of silver, which is more bulky relative to value, they have a bullion depository, the cost of which they’ll quote on inquiry. There is also a small a fee each time you ask that Crowe Australasia access your box.

NZV can also cover the contents of your box under its Lloyd’s of London insurance policy. Insurance is offered in bands of $10,000, up to an unlimited amount for any one box, based on the dollar value you specify for the contents. NZV doesn’t need to know what’s in the boxes being insured. Alternatively, you could have your own insurer cover the contents of your box.

There’s yet another advantage of dealing with NZV: Thanks to a special arrangement with the Bank of New Zealand, the company can open a bank account in your name to facilitate trading bullion in and out of your NZV account in New Zealand dollars. That’s particularly useful since the New Zealand dollar price of gold has improved considerably in recent years.

Of course, that also means that you have a bank account in a foreign country, without actually having to live there yourself. That’s not easy to achieve. In this case, because you’re doing business in the country and have valuable assets stored there, you’re welcome to establish a banking relationship.

The only requirement is that within 12 months of having opened the account, you must present yourself to a New Zealand Bank branch to confirm your identity. “Buy gold online, store it in a foreign jurisdiction.”