can you trust perth mint

  1. 12,912 Posts.
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    From the GATA mob....


    GOLD CERTIFICATES AREN'T GOLD,
    BUT ALLOCATED GOLD IS A LOT CLOSER


    Answers by James Turk, Editor
    Freemarket Gold & Money Report


    Q: Regarding allocated vs. unallocated gold, I agree you
    are at risk with the bullion bank's performance in regard
    to the latter, in the case of a typical U.S. bullion bank.
    But why not select someone like Perth Mint in Australia,
    where your gold is government-guaranteed?


    A: You are a general creditor of Gold Corp., doing business
    as Perth Mint. Its 2002 financial statement shows that it
    has approximately 4.5 times more debt than equity, fairly
    high leverage. Are you prepared to be a general creditor of
    Gold Corp., given that kind of leverage?


    The term "your gold" is not correct. You don't own the gold
    represented by Perth Mint certificates. You own a PROMISE
    to pay you gold, which was the basic point of my article.
    Promises to "pay" gold are different from gold you own. If
    you own a Perth Mint certificate, you do not own gold.


    Q: Perth Mint guarantees to have physical gold bullion in
    storage to cover your allocation -- unless I have been
    misled. Doesn't this mean an air-tight guarantee?


    A: This may be a guarantee but it does not deny that you
    are a general creditor of Gold Corp., based on my reading
    of the documentation. According to Gold Corp's 2002 financial
    statement, there is $96.2 million of gold on hand against
    $234 million of liabilities. Unfortunately, the financial
    statement does not show what portion of these liabilities
    is Perth Mint certificates, but it does show that $222.5
    million represents gold liabilities, so the Perth Mint
    certificates represent some portion of this $222.5 million
    of debt. Unfortunately it is not possible to determine
    from the financial statement whether there is less than
    $96.2 million of Perth Mint certificates outstanding, as
    the mint claims.


    As for the "air-tight guarantee," if there is a problem, is
    the Western Australia government going to pay you dollars
    or ounces? Is it going to exercise a "force majeure" clause
    to relieve itself of any obligations? My point is that one
    should not take risks with his gold, which is the
    cornerstone of your portfolio, particularly amid the
    prevailing financial uncertainty. If you are relying on a
    government guarantee, you may be relying on a hollow
    promise. You don't risk relying on a hollow promise when
    you have allocated gold.


    Q: Perth is also a long way away from the U.S. government's
    clutches.


    A: Maybe, but governments can be governments
    regardless of where they are. Who can predict how any
    government might act in a crisis?


    Q: I recommend that bullion holders in the United States
    purchase their equivalent holding in unallocated bullion (no
    holding cost but a 1 percent purchase premium) and then
    liquidate their physical holding in the United States to cover
    the cost. You might do it in reverse if you think the buy/sell
    timing/price is likely to be better.


    A: Avoid unallocated gold. If you think you "own" gold with
    an unallocated holding, you are mistaken.


    Q: I have unallocated holdings with Perth Mint. What you
    described in your article suggests that owning unallocated
    gold and having only a certificate of proof of such means
    that I am only a creditor of Perth Mint.


    A: Correct.


    Q: If you suggest that Perth Mint and other gold operations
    can default when they promise to have bullion holdings
    equal to or greater than total unallocated gold certificates
    issued, then I would say they could equally default if you
    had certificates for an "allocated" holding, with bar serial
    numbers and all.


    A: No, there is a big difference. If they default on their
    general obligations, allocated gold stored at Perth Mint
    will not be affected (unless, of course, there was fraud,
    but we are not talking about that possibility). Allocated
    gold IS gold you own; it is not an asset of Perth Mint.
    Thus the liquidator would return your gold to you if Gold
    Corp. were wound up.


    Q: After all, couldn't they decide to dispose of or sell or do
    what they like with your "allocated" bullion if they decide to
    default?


    A: No, they could not do this without breaking the law.


    Q: If you see what I mean, having someone else hold your
    physical gold means your holding is not fully in your control
    and you are at the mercy of the people holding it for you.


    A: Yes, you have more control over gold in your personal
    possession, but holding your gold is not without its own
    risks. In my view, owning allocated gold acquired within an
    established chain of integrity (like the one established by
    the London Bullion Market Association) and having that
    gold insured is the safest way to hold gold, and this is the
    standard we have achieved at GoldMoney.


    Q: I would trust neither a commercial company nor the U.S.
    government but feel a little more confident with the Western
    Australia government.


    A: I take the opposite view. I think a commercial company
    with a strong governance policy and insurance for its
    customers' gold is the preferred option. In contrast to
    governments, commercial companies cannot unilaterally
    change the rules of the game to their advantage, as
    governments have a history of doing. Commercial
    companies stay in business by serving their customers.
    Governments stay in control regardless of how they act
    -- unless, of course, they are overthrown.


    Q: If you have any information suggesting that the Perth
    Mint has some loopholes in its guarantee that could let it
    default against holders of allocated and unallocated bullion
    certificates, please let me know.


    A: Perth Mint cannot default on its allocated gold without
    breaking the law. Gold Corp. and the Western Australia
    government can default on the Perth Mint's UNallocated
    bullion certificates by using Perth Mint's "force majeure"
    clause. Read all the fine print written on the certificate,
    including: "The Perth Mint will not be liable or
    responsible for delivery delays due to causes beyond its
    control."


    I hope that you find the above useful. Storing gold can be a
    complicated matter, and most people do not appreciate the
    intricacies of the law, which is why I wrote my article. Most
    people do not understand that when you own a certificate,
    you do not own gold. You own only someone's promise to
    pay you gold, and this credit risk should be avoided for the
    cornerstone role gold fulfills in your portfolio
 
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