Some precious metal investors choose to store their gold and silver bullion in a bank’s vault for a variety of reasons.
Maybe some own a large amount and need a completely secure place to store it. Perhaps some absolutely think storing precious metals in their home is a bad idea.
Lately though, there’s been question as to whether some big banks actually store depositors’ metals on-hand. Or, do they loan it out and charge storage fees for gold and silver that actually isn’t in the vault?
These questions arise because there appears to be more gold supposedly held by banks than is in existence according to some gold commentators, news reports and this article in MineWeb.
Anyone with some knowledge of banking knows that a bank does not hold all of the cash on hand that depositors have in their accounts. If everyone who had a bank account went to the bank at once to retrieve their deposits, the bank would not be able to immediately pay. Banks take funds on deposit and lend them out and generally retain enough on-hand to meet daily demand.
This same premise could be applicable to stocks of bullion as well.
Some of these banks say that if necessary, they would be able to obtain enough physical metal quickly enough to return to the owner should they ask for it – or at the very least, provide cash in lieu.
Of course, if you want your gold, you want your gold, right?
Many assume ‘allocated’ gold (or silver) is kept on hand at the bank but ‘unallocated’ bullion on the other hand is loaned or sold. It’s returned or repurchased if need be. Many analysts will tell you though that the amount of gold and silver traded in virtual transactions exceeds world physical gold holdings by a large multiple.
Therefore, if everyone insisted on physical delivery of their metal, it would be completely impossible for the banks to provide it.
Some investors have in fact said they have had trouble obtaining physical delivery of their holdings. One quoted by Jim Rickards, a respected proponent of gold market manipulation, says his gold was only returned after threats of legal action and media exposure. This particular investor had a pretty hefty amount – $40 million worth.
Other investors report difficulties with much smaller amounts of bullion.
Rickards and others think this serves as evidence that banks do not have depositors’ metals on demand in their vaults…he even goes on to suggest investors store their bullion in privately run vaults rather than those in the banking system.
As you can imagine, if enough investors demand delivery of their precious metals, this loss of confidence could cause quite the short squeeze in the gold and silver markets.
