How to Own Gold Offshore

Last week I wrote about the factors driving the gold price, which has been on a tear. Given those factors, we can expect the gold price to continue to rise into the future.

Increasingly, people are choosing to hold gold outside the US as a hedge against political and economic uncertainty. In this week’s article, I’m going to reveal some of the critical decision points when it comes to overseas storage.

Let’s start with storage.

A foreign safe-deposit box is simple, relatively private, and usually inexpensive. Banks offer familiar processes and decent physical security. But there are trade-offs:

1. Access is tied to banking hours and policies, which can matter in emergencies.
2. In some countries, banks may be subject to “bail-in” laws, moratoria on withdrawals, or temporary bank closures. Those policies generally target bank liabilities, not box contents, but closures can still strand you temporarily.

Private vaults provide storage with robust chain-of-custody documentation, serial-numbered bar lists, regular third-party audits, and explicit all-risk insurance underwritten by global carriers. Advantages include 24/7 monitored access and the ability to ship or trade directly to and from the vault.

The main trade-off is counterparty risk. A vault isn’t a bank. If it goes bankrupt (which is extremely rare), you want guarantees that the contents of the vault’s storage facilities are considered separate property from its own balance sheet. This is always the case with most large vaults.

What about costs? Professional vaults typically charge a storage fee (per annum on value, or per-bar fees), plus handling and shipping fees. Banks, on the other hand, charge flat annual fees, plus “drill fees” if keys are lost.

Often these fees are comparable. But the big question is the price of “exit”: What does it cost and how long does it take to (1) collect your metal in person, (2) ship domestically/abroad, or (3) sell in-vault to a dealer?

As I’ll explain below, my personal preference is always for vault storage. But here you have two options:

• Allocated storage means specific gold is yours. The serial numbers are recorded, and your name appears on the inventory report. You can take delivery of those specific bars.
• Unallocated storage is cheaper, with the dealer or vault as your counterparty. You have rights to a portion of a common pool of gold, not specific bars. It’s convenient for trading but exposes you to credit risk and usually doesn’t carry the same insurance terms as allocated/segregated holdings.

Then there’s the vexed issue of reporting. This is critical for US taxpayers, and a deciding factor when it comes to choosing a storage option.

• FBAR: US persons must file a Foreign Bank Account Report with the US Treasury Department if they have a financial interest in foreign financial accounts whose aggregate value exceeded $10,000 at any point in the calendar year. Typical reportable accounts include foreign bank, brokerage, and certain pooled funds.
• FATCA: the Foreign Account Tax Compliance Act requires US taxpayers to report specified foreign financial assets over certain thresholds (which vary by filing status and residency).

Whether foreign gold holdings are reportable under these laws depends on where and how they are stored.

• Directly owned gold isn’t a financial asset. If the gold is registered in your name with specific serial numbers allocated to you, it’s simply private property like a house or a car and doesn’t need to be reported to the US government.
• Unallocated gold and gold certificates are usually reportable. That’s because you don’t own specific gold as your personal property. You have a legal financial interest in somebody else’s gold, which makes it a financial account.
• Bank safe-deposit boxes may or may not be considered financial accounts. The key variable is the right relating to the contents of your box. If they can open it, move the metal, sell it on instruction, and hold the cash proceeds, then that’s a financial relationship, and therefore reportable. Given that most people store gold abroad precisely for the flexibility to have the storage institution trade it on their behalf, that makes safe deposit boxes a lesser option.

If you decide to store gold abroad, whether by shipping existing holdings there or buying new gold, how you own and store it can have major implications for you.

Fortunately I have good relations with several excellent private vaults abroad and can easily make introductions for you!

For more… book a private consult with me right here.