abc bullion, page-24

My comments below are in respect of Perth Mint, I'm not going to try and cover other programs and readers best to do their own DD.

"My fear is that many investors are buying into Unallocated schemes thinking that if a crisis hits they will have access to that precious metal as if they owned it."

In terms of speed of accessibility, unallocated is 1-10 days (could be longer if everyone turned up to collect) to allocated (0-2 days) to self storage (immediate. Consider however that speed of liquidation and best price often works in reverse, with unallocated ahead of allocated ahead of self storage. It is all a personal trade off.

"1. If you give notice to the scheme to take delivery you normally have to wait longer than 7 days to get your metal. Does this sound like security for the investor?"

Depends on what we have in stock, often people get it immediately, but one may have to wait. If everyone wanted to collect at the same time there would be a wait as our coin presses can only make coins at a certain rate.

"2. If the government decides to change the laws of precious metal ownership, the scheme is obliged to comply with a government instruction over yours. Does it seem like accountability to a third party/s is greater than that to the purchaser?"

In such a situation the law is also like to apply to personally stored metal as well. Confiscation is generally not specific to custodians. In this blog post http://goldchat.blogspot.com/2008/11/australian-gold-confiscation.html I suggest a probability that Perth Mint's unallocated may actually be safer against confiscation than Allocated.

"3. If a local or national crisis occurs the scheme is not obliged to deliver your metal in accordance with the agreement and unspecified delays are entirely possible. Could this be a security issue for the owner?"

Are you talking about a confiscation event here, or just some physical event like strike, flood, riots etc? In the latter I would argue that Perth Mint's vaults are more secure than one's personal hiding place.

"4. The maximum liability of the Unallocated provider will be limited by clauses in the contract, rather than reflecting the true price of the precious metal when the account is settled should they fail to deliver. Is it possible the client may not necessarily realize the full potential value if delivery fails?"

On our website we explain that the Government Guarantee, while defined in cash terms, would be actioned by the Mint by claiming the cash off the Government and using that to buy the replacement metal

"5. The metal may appear as an asset in more than one set of books, for instance the client AND the scheme providers. Could there possibly be more than one owner in this case?"

No, not in the case of Perth Mint. We have the gold asset and we have a corresponding liability to the client. There is no onlending of the metal.

"Another issue with unallocated precious metals schemes is that on the whole they are a disconnect between the client and precious metals market discovery mechanism."

Absolutely not in our case. When a client buys or sells from/to us, we buy or sell from the spot market, thereby affecting the market price.

"6. Unallocated schemes are under no obligation to time their purchase of precious metals in accordance with your purchase. Will metal be withdrawn from the market when a client makes an investment?"

Absolutely yes in our case. We have no use for a client's cash, we are a mint, therefore we need gold, not money, to run our business.

"7. Unallocated schemes time the purchase of precious metals to their own advantage. Could the provider be generating profit from astute timing of larger purchases?"

That is speculation activity and we are not authorised by the Government to take speculative/gambling positions, we buy (or sell) from the market as soon as possible from when the client transacts with us.