Smarter Utility

 

[March 19, 2006]

New gold standard is online

(Orange County Register, The (CA) (KRT) Via Thomson Dialog NewsEdge) Mar. 18--Sergio Siderman has the Midas touch.

One day in December, he sat down at his computer and, with a few clicks of the mouse, he had his own cache of gold.

He couldn't see it or touch it because the gold bullion was stored in a Brinks vault in New York. But an e-mail confirmation said he had established a gold account and the dollars he had just sent from his Los Angeles bank had been converted into bars and partial bars of gold in his name.


Welcome to the new world of online gold buying.

In the past, people who wanted to own gold had to buy coins and gold bars, usually at a markup, then find some place to store it, often at additional cost. More recently, investors have gone the stock route, buying gold mining shares, mutual funds or the gold exchange-traded fund, GLD, which is like a gold mutual fund that trades all day.

But as the price of gold has soared over $500 and questions mount about the value of the dollar, interest has grown in owning the metal.

Responding to that demand, several companies have gotten into the Internet gold trading business, but with a 21st-century twist -- they keep the gold stored for you in vaults in places such as New York, London or Switzerland and the buying, selling and bookkeeping is all done over the Internet.

Gold? Dot-coms? Vaults somewhere far away? Sounds like a scam just waiting to happen. And some of these Web sites could well be the latest get-rich scheme.

But some money managers are beginning to give the idea of online gold trading a closer look and -- after a lot of investigation, including on-site vault visits -- they are recommending at least a few companies to their clients.

Chip Hanlon, president of Delta Global Advisors in Huntington Beach, is a convert to a company called BullionVault, which is based in London and also has vaults in New York and Zurich.

He first looked into the company about a year ago, asked lots of questions and visited the company's Brinks vault in New York. He liked what he learned, but was put off by the wide bid and ask price spreads.

Hanlon checked it out again a few months later and saw that the bid/ask prices had narrowed considerably -- sometimes under a dollar -- indicating much more liquidity in the market. He was even more impressed by the maximum sales charge of only 0.8 percent and a storage fee of 0.12 percent a year based on the value of the gold purchased -- a bargain for owning gold, said Hanlon.

There is no minimum purchase. The gold can be bought in an amount as small as a gram for about $20. And transactions can be done 24/7.

Peter Schiff, president of Euro Pacific Capital Inc., which has offices in Newport Beach, likes a different Web site, GoldMoney, run by James Turk, a former Chase Manhattan banker and a gold bull who is author of "The Coming Collapse of the Dollar."

Based in Jersey in the British Channel Islands, the five-year-old company operates much the same as BullionVault, with gold reserves stored in a secure vault near London that are audited quarterly by Deloitte & Touche.

"(GoldMoney) is the most reputable," says Schiff. "And it's stored and insured by Lloyds of London."

That said, Schiff prefers to buy his gold through the Perth Mint in Australia, which issues gold certificates. For Schiff's money, it's the safest way to hold gold because it is backed by the government of Western Australia.

"It's the only way to have a gold account that's government insured and reinsured by Lloyds of London," he says. Initial investment is $10,000.

Others like Robert Kiyosaki, a columnist for Yahoo! and author of "Rich Dad, Poor Dad," still likes his gold the old fashioned way -- bought directly in coins and bullion and stored in his own private vault. In fact, he even took his passion for gold a step further -- he owns a gold mine in China.

"I buy gold because of the dollar," says Kiyosaki, who also owns some gold stocks. "I call gold real money."

Ryan Kelly, chief executive of Spectrum Asset Management in Newport Beach, believes that investors should have about 5 percent of their portfolios in some sort of gold investment for diversification.

But he's a little squeamish about gold Web sites, saying they sound too much like the dot-coms of the 1990s, when a lot of scam artists took advantage of unsuspecting investors.

"At the end of the day, who is going to guarantee my gold is still there?" he asks.

Mike Maroney is vice president of sales at Monex, a traditional precious metals dealer in Newport Beach that does $2 billion in business a year selling coins and bars directly to customers and arranging for storage when requested.

He was not only concerned about potential Internet scams but the ability of these new gold companies to weather volatile markets.

"Lots of people will sell you precious metals but are not collateralized well enough to repurchase it," says Maroney, whose company has seen its share of booms and busts over 40 years of business. "In 1979 when gold went to $800 then sank to $50, a lot of companies just didn't answer phone calls."

Siderman, the chief operating officer of Property I.D. in Los Angeles who invested in BullionVault in December, thinks investors should have a healthy dose of skepticism about gold Web sites.

"The only reason I went with them is because my broker visited the vault and saw the gold," he says.

BUYING GOLD ONLINE: Many money managers recommend investors keep some of their holdings in gold, usually through gold stocks, mutual funds or the gold exchange traded fund, GLD. Before buying gold online, they have these tips:

--Check it out. Investigate the company and its principles and either visit the gold vault yourself or make sure a trusted investment adviser has.

--Make sure it is insured.

--Make sure it is allocated gold -- the gold grams are stored in your name and allocated to specific bars and are not part of a general pool.

--You cannot make Internet gold purchases for IRA accounts.

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