Last Updated on August 9, 2024
Offshore gold storage in another jurisdiction has three key benefits.
- You put yourself out of reach of government seizure and capital controls
- You diversify your political risk
- You can give yourself a degree of financial privacy.
There are a number of compelling reasons to buy gold, especially in the current market environment, not least the fact that gold has been sound money for thousands of years.
The problem is, at least when you buy physical gold, you have to decide where to store it.
Once you have more gold than you are comfortable keeping in your home then it is worthwhile considering offshore gold storage.
Storage Options For Gold
There are three options you have when it comes to storing gold:
- At home
- Local storage
- Offshore storage
It makes sense to keep small amounts on hand at home. Many people want the security of knowing that they have immediate access to some precious metals should they need it.
But it is very risky to keep large amounts of bullion in a home safe.
The next logical step is then be to store larger amounts of gold and silver in a safety deposit box in your home city. That also has the benefit of quick and easy access.
While that has a certain advantage in that it is close by, you miss out on the benefits of political diversification that comes with offshore gold storage.
If you have large amounts of gold then utilising all three options is something worth considering.
Why Store Gold Offshore?
1. The Risk of Government Seizure or Capital Controls
In 1933 President Roosevelt famously seized gold from the hands of private US citizens.
Five days after assuming the presidency, FDR passed the Emergency Banking Act under urgency. This act, among other things, provided the authority for the President to confiscate gold from private citizens.
This is exactly what happened a month later when FDR gave an Executive Order forbidding the private ownership of gold and requiring gold to be handed into the Federal Reserve.
The right to own gold was not restored until the Ford administration in 1974.
In the UK, exchange controls were implemented by regulation upon the outbreak of war in 1939. This prohibited the removal of gold from the country and required citizens to offer their gold to the Treasury.
These regulations were then later put into legislation in 1947 with the Exchange Control Act. They lasted until Margaret Thatcher abolished them in 1979.
In Australia, confiscation has never occurred, but a law exists that provides the authority for the government to do so if it wished.
The Banking Act 1959 Part IV, if put into operation, would prohibit anyone from taking gold out of the country and would require them to deliver the gold to the Reserve Bank of Australia.
In 1939 Australia did enact a 50% tax on gold redeemed at the Commonwealth Bank. So while this is not outright confiscation, it shows that the government has a track record of being prepared to interfere.
These three examples show that the risk of government seizure of gold or capital controls in developed countries is present. It may not be high, but the risk is not zero.
There is a school of thought that suggests that such a confiscation is unlikely in the current monetary system because now, unlike then, we are not on the gold standard.
The argument suggests that governments were prepared to confiscate gold because of the supreme position it had in the monetary system. It wasn’t because they wanted to raise revenue but because they felt they needed to exert more control over the system.
There is a contrasting school of thought which suggests we are just as much at risk now of a gold confiscation as we were in the middle of the 20th century.
The argument says that debt has risen to such a level that it is now un payable and that governments and central banks will, at some point, no longer be able to kick the can down the road and will have to confront the crisis. At that point, when the financial hurricane consumes us, governments will be prepared to entertain all options, including gold confiscation.
Personally, I think the chances of gold confiscation are low. However, there is clearly some risk. I also would not rule out foreign exchange controls. In fact this is much more likely than outright confiscation.
Given the chances are not zero, then it makes sense to try and protect yourself from government confiscation by holding a significant amount of your gold outside of your home country.
It is often said that it would be a shame to buy gold to protect yourself from a government’s monetary folly only to see that same government confiscate the asset and penalise you for having wisdom and foresight.
Of course it is possible that your government declare foreign holdings of gold illegal too. But you can’t protect yourself from everything. Holding gold offshore at least mitigates some of the risk.
2. The Diversification of Political Risk
Most people live, work and hold all their assets in the same country. While this may have made sense in the past, it is no longer necessary in the 21st century.
There are many ways that you can diversify your political risk. You can work remotely, you can get a second passport, you can open up a foreign bank or brokerage account, you can own cryptocurrency and you can store gold outside your home country in a stable jurisdiction.
By doing these things you internationalise yourself and reduce your exposure to economic or social upheaval in your home country. Putting all your eggs in one basket politically is risky, especially if things start going downhill in that country.
On the rare chance you ever have to leave your home in a crisis, you know you have some assets safely waiting for you outside the country.
It would have been very unfortunate to have been stuck in France in 1789, Germany in 1933, China in 1949 or Ukraine in 2022 with no assets safely outside the country.
By storing your assets outside your home country in advance, you won’t have to try to scramble to take them with you if you need to leave in a hurry.
Even if you feel that things are stable right now in your home jurisdiction, there is no guarantee it will stay that way.
Many would argue that cryptocurrency is the superior choice in a crisis. You can cross any border with just your seed phrase and then recover the funds anywhere in the world.
I agree with that.
However, if you want the stability and lower volatility of gold, then it makes sense to have some of the yellow metal as part of any offshore diversification strategy.
Now, thanks to modern technology, it is simple and easy to arrange offshore gold storage. It can all be done through the internet without the need to travel and make arrangements in person.
There are numerous good options in several jurisdictions in different regions of the globe.
3. Financial Privacy
One of the other key reasons to consider offshore gold storage is for financial privacy.
Depending on the law where you live, it maybe possible to arrange offshore gold storage without it being reportable.
My best understanding of US legislation is that offshore gold held outside of a financial institution is not reportable. This rule may differ in other jurisdictions and can change at anytime. [Disclaimer: check with your lawyer].
Many offshore storage facilities will require you to provide your details though, however, there are some that won’t and are fully private.
While Bitcoin may be better for crossing a border, gold is much more private. After all, every transaction is recorded immutably on the Bitcoin blockchain and can easily be tied to your identity.
Gold has no blockchain or immutable ledger, the only records are man made. Gold could even be melted down and recast.
If you are looking for a private cryptocurrency then Monero is the best option. Of course Monero doesn’t have the stability and history of gold.
Choosing A Country To Store Your Gold
There is little point in moving gold offshore to diversify against political risk, if you choose a jurisdiction that also has a high level of political risk.
What you need to look for is a country that has the following attributes:
- Stable domestic politics
- Geopolitically stable
- A good financial position with low debt
- A low risk of confiscation
- A good track record as a wealth haven
If you are storing a very large amount of precious metals, then it is also worth thinking about diversifying into a number of different countries and facilities.
Best Countries To Store Gold
Gold Storage in Singapore
Singapore is the top of many people’s lists for offshore gold storage and it is my personal choice as well.
Singapore is a major financial hub with a very stable government that is in a solid financial position. Crime and corruption are incredibly low in Singapore.
Since independence from Malaysia in 1965, Singapore has positioned itself as one of the world’s foremost financial centres. Since 2012, with the removal of VAT on physical gold and silver, Singapore has become one of the world’s premier bullion storage locations.
There are numerous top quality vaults with reasonable premiums and storage fees.
If it is something that you are looking for, you will also find firms who will provide a loan against your physical bullion.
Gold Storage in New Zealand
Largely due to its physical remoteness, New Zealand has become a favoured bolthole for the wealthy. They often buy up large slices of rural land, but there is also a significant amount of foreign wealth buying urban property.
New Zealand is also an attractive place to keep precious metals and both Auckland and Wellington have good services.
New Zealand is not in as robust a financial position as Singapore but it is financially and politically stable. The combination of its stability and remoteness from geopolitical hotspots make it an attractive location.
Former Prime Minister Jacinda Ardern has recently been promoting her progressive credentials around the world to much acclaim. This might make an investor nervous about the direction New Zealand might be taking.
However, as someone on the ground in Auckland, I can tell you she was not universally admired here, and the general public is much more centrist than what she represents.
Regardless of the recent left wing rhetoric, since the deregulation of New Zealand in the 1980s and early 1990s, no left wing government has seriously challenged those reforms.
New Zealand is and will continue to be a stable jurisdiction for international investment.
Gold Storage in Austria
Austria’s key advantage is that it is possible to store gold and silver anonymously, should you wish to do so, which is quite rare in this day and age.
Of course you will pay a large premium for the privilege.
While you lose the remoteness of New Zealand and get in return the potential geopolitical hotspot of central Europe, you also gain the convenience of a European location.
Gold Storage in the Cayman Islands
The Cayman Islands are another favoured location of the wealthy due to their favourable tax environment. A large financial services sector has developed country including offshore gold storage.
The Cayman Islands is a British Overseas Territory located in the Caribbean. It is self-governing but the Queen of England is the sovereign and the country is protected by the military of the United Kingdom.
The major advantage, for Americans and Canadians at least, is proximity. It is much closer than Singapore, New Zealand or Austria.
What To Look For In A Gold Storage Facility
Once you have decided upon your jurisdiction, you will need to consider which storage facility to entrust with your assets.
The first thing to be aware of is avoiding banks. It is possible in case of bank failure that you lose access to the contents of your safety deposit box. It is much safer to go with a private storage facility that is not exposed to risk in the banking sector.
Depending on your needs, it is worth considering whether you want to ship the gold you currently own to the facility or whether you want to purchase through them. Many facilities will do both.
Personally, I was not interested in shipping. I wanted a facility where I could send money to buy and sell bullion and have the funds sent back to me.
Another important thing is for a facility to offer the option of taking physical possession. Even if you never intend to take physical possession, the option to take it must be there. This is the best defence you have against the facility taking or lending out your bullion.
Of course there is always a risk of this happening. “Not your vault, not your gold” is the same thing as “not your keys, not your crypto.”
One of the key things to consider when buying precious metals through a storage facility is to check whether your metals are fully allocated and segregated. That means that the bullion you own is separate and identifiable as yours with direct legal ownership. You want to avoid owning a claim on bullion that is unallocated where an ownership claim could possibly be made by another party or the dealer themselves.
In other words, if you buy a one ounce gold coin, you want that particular coin clearly identified as yours. You don’t want to have a one ounce claim on a bar of gold that other parties also have a claim on.
The best way to keep a storage facility honest in this way is for them to allow customers a means of auditing their precious metals. Make sure you check the audit policy when choosing a provider.
One final thing to consider is whether the facility allows you to borrow against your bullion. This is not something I have ever done or desired to do, but it is something that is available to you should you wish.
Conclusion
Offshore gold storage allows political diversification and lowers your sovereign risk.
Instead of centralising your life and assets in one jurisdiction, you start spreading your assets across a range of countries.
This will minimise your risk in case of government seizure, capital controls or social unrest at home.
There are plenty of options to choose from around the world but Singapore stands out as the premier destination with a number of high quality facilities.
Image Credits
Marina Bay Sands by Mike Enerio on Unsplash
Auckland Skyline by Dan Freeman on Unsplash
