If You Don’t Hold It, You don’t Own It

Over the last year or three, we have read in the news about safe deposit boxes that was broken into and valuables stolen. Many times these valuables are family heirlooms and cannot be replaced. When it comes to hard assets, it is essential that we delve into this problem a little deeper. The saying goes “If you don’t hold it, you don’t own it”

In this article I am especially referring to physical gold and silver. We have to consider the so called counter party risk. If you have put money into a gold or silver backed ETF (Exchange Traded Fund) you get a piece of paper that states what you own. These funds are backed by physical gold or silver that the fund buys as per their mandate. The question now becomes, where do they actually store these valuable items? The answer is, they give it to a 3 rd party who has the secure facilities to safely store these assets. Thus the 3 rd part risk. There are of course legal contracts to ensure delivery of these assets can take place on demand. Bear in mind that these contracts are between the safe storage business and the unit trust company. It is not between you and the storage company. It does not matter that the storage company is fully prepared to honor the contract if circumstances beyond their control prevents them from delivering on their mandate. If the unit trust company goes bankrupt, everything gets frozen by the liquidators. You will now have to put in a claim against the company and wait for many years to maybe get something back. An example of when safe storage went wrong can be seen on this link.

The only other option apart from keeping these assets yourself, is to get a safe deposit box in your own name but not at a bank.

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