Owning gold is an excellent way to diversify your portfolio into hard assets without any management hassle. We’ve discussed how privately vaulted gold and foreign real estate are the only two non-reportable assets US citizens can legally hold overseas.
Whether you believe that hyperinflation will effect your portfolio or you just want a hassle-free way to diversify out of fiat currency, gold and silver can help as a part of your portfolio. I never recommend it as a total replacement for cash, but it augments cash and other assets well.
Challenges of gold ownership
As an international investor from the United States — and as someone frequently on the go — I have two logistical issues with gold:
1. Where to store it outside of my home country, without taking physical possession.
2. How to maximize the value of an alternative asset with no yield.
The first problem is an easy one to solve. For years, I’ve been telling you about the benefits of offshore gold storage, where you use private vaults — not bank safe deposit boxes — to store precious metals outside of the banking system.
This way, your metals are not only non-reportable, but also outside of the US system and protected from gold confiscation.
Offshore gold storage
Right here in Singapore is my favorite place to store gold offshore because it is stable, independent, and is making big waves in the world of precious metals storage. Whereas Switzerland was the place to store gold and silver in the 1900s, Singapore is the place in the 2000s.
We’ve discussed options for storing gold in Singapore, as well as how to ship your gold to Singapore very inexpensively. There are an array of options available for storing gold and the gold market here in Singapore has become very competitive.
In fact, I see new levels of innovation in the business every time I come here.
How to solve gold’s liquidity problem
A few days ago, I spoke to my friend Eric Highsmith who runs Scottsdale Mint in Arizona. I spent a lot of time working with gold dealers when I ran a broadcasting business and I have a lot of friends in Arizona who still run in the financial circles.
Eric and I both have connections in Singapore and so we were talking about what I think is one of the most interesting advances for retail gold investors in a long time: being able to borrow against your gold.
Quite frankly, I believe that more people would buy gold, and more people would invest a greater percentage of their portfolio into gold, if they knew of a way to get some sort of yield on their precious metals investment.
One of the reasons people like foreign real estate so much is that yields can easily top 10% per year. Add that to market appreciation and currency appreciation and you’ve got a good investment for part of your portfolio.
Gold, however, does not offer a yield, nor can it be borrowed against like a residential or commercial property. At least until now.
While gold and silver can appreciate, it will never be able to offer a yield. The value of your gold may go up in fiat currency terms, but there is no cash flow.
However, it can be borrowed against like any other hard asset even though, historically, this has not been an option available to retail investors. Since I met Eric, I’ve been learning more about a way to use your gold and silver holdings as collateral to borrow money.
And it’s possible right here in Singapore.
How a gold bank loan works
Eric’s friends at SGPMX — based at the Singapore Freeport — have forged relationships with Singapore banks to allow their gold customers to borrow money against their gold holdings.
Here’s how it works:
First, customers can ship their gold and silver to the Singapore FreePort or establish a new position if they don’t have one already.
Once a customers’ precious metals holdings are properly segregated in storage, the private vault company will prepare a report detailing what those holdings are and take it to a local bank on the customer’s behalf.
The bank will then extend a loan of up to 80% of the value of those precious metals into a local Singapore bank account that the gold customer owns. Then, the money can be spent in the same way loan proceeds from any other asset would be.
Seeing that interest rates on the Singapore dollar are extremely low right now, borrowing money here makes sense if you either need the liquidity or if you believe gold prices will rise.
If gold prices rise, you’ve essentially created an arbitrage opportunity for yourself to repay a loan at very low interest rates while enjoying the ability to repay the loan and sell the collateral for a far more significant profit.
In the meantime, you have use of cash that you can use for living expenses or to invest into other assets. This offers you the chance to go long gold and foreign real estate at the same time, even if you weren’t previously able to invest in both.
It also gives gold owners a way to get cash out of their position when they may need it.
Currently, a gold bank loan is available to non-US citizen customers at SGPMX. Singapore banks, like most other banks, have made it difficult for US persons to open bank accounts here, and issuing loans to US customers is even more risky to them.
Eric tells me that SGPMX will have an opportunity for US customers to borrow against their gold sometime next year, but I don’t have all the details yet.
I’m a big fan of gold storage in Singapore, especially at the Freeport. I’m good friends with some of the guys who manage the day-to-day operations at the FreePort, and it’s perhaps the best place in the world to store gold.
If you’re interested in more details, you can learn more here.
If you are interested in offshore gold storage, you can apply for a Strategy Call so we can determine your best options as part of a personalized and completely legal offshore plan.
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