Why you want to store gold overseas… and how

Reporting from Hong Kong

It’s the Chung Yeung Festival holiday in Hong Kong today… it’s nothing but an excuse to go shopping (and sing Elvis tunes in public). Think Black Friday (day after Thanksgiving) in the US or Boxing Day in the UK on steroids.

One of the big differences is that, aside from buying plasma screen televisions and faux Louis Vuitton handbags, the Chinese are buying all the gold they can get their hands on. When was the last time you heard of somebody getting trampled in Wal Mart because of a special on quarter-ounce Eagles?

The Chinese, both in the mainland and in Hong Kong, have a cultural proclivity towards gold.  Similar to India and the Arab world, they don’t view it as a barbarous relic, but rather a more reasonable store of value than paper currency. Gold ownership is very common here, even if just in denominations as small as 2.5 grams.

As I mentioned yesterday, Hong Kong is one of the cheapest places in the world to buy gold. (it’s also one of the best places to bank, but we’ll save that for another time…) But what about storage?

Bank safe deposit boxes are the common solution; when people think ‘valuables storage,’ they think bank safe deposit boxes. Ironically, this is exactly how banking first began– bankers were the safekeepers of people’s valuables. In exchange for securing people’s gold, customers would pay the bankers a fee. This is how safe deposit boxes work today.

While banks in Hong Kong are far more stable and reliable than insolvent government puppet banks in the west, I’ve always preferred private storage facilities. They’re typically unregulated and don’t fall under a host of various government inspection agencies.

Once place in Hong Kong that I’ve had a good experience with is a company called The Storage (www.thestorage.com.hk) in the Sheung Wan district. Established in 2004, the Storage rents safe deposit boxes as well as private mailboxes.

The smallest safe deposit boxes (large enough to store several million dollars worth of gold coins) cost just under $80/year, and you can pre-pay 2-years in advance. They do not rent boxes anonymously, but you can rent through a corporation.

Boxes are in a highly secure, bank-style vault with round-the-clock in-house security; box contents are automatically insured to HKD 100,000 (about $13,000 USD).

As of this week, they still have small boxes available (always the most popular), though only on the top shelf of their secure room.

So why am I telling you this? Because it makes a hell of a lot of sense to store precious metals overseas:

1) Like it or not, confiscation is a risk. The higher the gold price becomes, the more it ends up on the radar for creditors, bureaucrats, or anyone who’s just plain litigious. Banks and storage facilities in your home country fall within the same jurisdiction as you do, so if you get dragged into court or onto some bureaucrat’s list, the risk of asset seizure is very high.

2) For US taxpayers, gold stored overseas in your own vault is currently not a reportable asset, so it’s an effective, legitimate means of storing wealth privately. I’ll get into the new FATCA reporting requirements another time.

3) If you move gold overseas to a stronger economy with a gold-oriented culture, it will be much easier for you to sell and exchange for something of value. Think about it– in the US, what would you get if you sold your gold? US dollars. And only in certain designated places. In Hong Kong, I could trade for any number of currencies, goods, services, etc.

4) Transporting gold out of the country is getting harder and more onerous. If you can possibly envision yourself ever leaving your home country if/when things get rough, you’re going to want it prepositioned overseas already in a place where you can actually use it, not stuck at home buried in the backyard, or at a bank that’s been taken over by the government.

None of this is to suggest that the world is coming to an end… but we shouldn’t kid ourselves that we still live in the good old days. Internationalization is a smart strategy to reduce your sovereign risks and help you prepare for whatever lies ahead.

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