KITCO Pool Accounts

[AuNuggets]

There seem to be more and more concerns about so-called "gold and silver pool accounts" these days.

I dredged up this old thread from the archives, and thought some of you might be interested.

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View Full Version : Kitco Pool
http://goldismoney.info/forums/archive/index.php/t-15360.html


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VikingSilver11-30-2004, 07:20 PM
Does anyone hold PMs in the Kitco pool? Thoughts or opinions on this?

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jerry11-30-2004, 08:04 PM
Does anyone hold PMs in the Kitco pool? Thoughts or opinions on this?

Many discussions here about paper silver.

And if you do not physically hold it, it is only paper.

Most of us have known people who have been burned by "promised silver" and realize that the only kind to have is what you have to spend a lot of effort moving, protecting and storing.

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SilverNuts@Bolts11-30-2004, 08:37 PM
I have some maples in the Kitco pool, but will take delivery around Christmas.

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pennyweight11-30-2004, 09:51 PM
I often wonder about my Kitco pool account. I'm about 1/3 in each pool, physical, and stocks. I will be unloading the pool first. I see the pool and stocks as my investment pm's and the physical is for survival.

What kind of situation would render a Kitco pool worthless? http://www.goldismoney.info/forums/images/smilies/rolleyes.gif

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solamente_oro11-30-2004, 10:04 PM
Heya VS,

I've used the Kitco pool account for an ad-hoc dollar cost averaging of gold purchases. Every payday, a predetermined sum went to the pool account. At the end of the year, I cashed it out. It worked for me because my credit union charges less than a dollar for fund transfers and I didn't have to trek out to a dealer for a premium-heavy tiny wafer.

-

Solamente Oro

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AuNuggets12-01-2004, 09:03 AM
Kitco Pool accounts amount to NON-ALLOCATED (co-mingled) assets that would become receivership assets should Kitco ever have financial problems. When you hold a pool account, you are nothing but a creditor on paper. These are precisely the same type of accounts that went under back in the late 70s and early 80s, costing investors millions. There is nothing preventing them from playing the markets with your metals (or your cash), and the actual metals may or may not exist at all. Caveat !

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skyvike12-01-2004, 09:12 AM
Kitco Pool accounts amount to NON-ALLOCATED (co-mingled) assets that would become receivership assets should Kitco ever have financial problems. When you hold a pool account, you are nothing but a creditor on paper. These are precisely the same type of accounts that went under back in the late 70s and early 80s, costing investors millions. There is nothing preventing them from playing the markets with your metals (or your cash), and the actual metals may or may not exist at all. Caveat !

You're so right, Nuggets!

I'm beginning to feel like a MASH episode but here's one of my favorite "reruns"....

http://goldismoney.info/forums/show...74153#post74153

"Boy is Mr. Cook ever 100% right!

If you have silver "certificates", ask yourself where on the food chain you fall with whoever is supposedly holding it for you. If you honestly and objectively think they FEAR you enough to put you first in line to get your silver when TSHTF, the perhaps you MIGHT have some silver.

If, however, you're like most of us, just a small fish in the pond, when TSHTF, they will take care of those they FEAR the most, then they will take care of themselves, and you and the other small fish will be left arguing about what's left over.

And if there's anything left over, it will only be enough to keep you arguing with the other fish over to whom it belongs while the folks who got their silver slip off into the mist.

FEAR will rule the day.

Let me write that again:

FEAR WILL RULE THE DAY.

Never, ever, EVER rely on the honesty, integrity, and judgement of someone you know to be in a state of fear, no matter who it is. No matter if it's your mother or your priest. People who are scared are simply not reliable. They will have a different set of priorities (i.e. their obligation to get your silver to you will be far, far down the list) than you think they should. Even if you feel the fear too (like, "Oh shit, am I going to lose my silver?"), their priorities will not be yours.

As one of my mentors said to me once, "People tend to worry first about the alligators they perceive to be about to bite them in the ass and forget about the ones that arent' close enough (yet) to hurt them."

So unless you're the biggest, scarriest Alligator in the swamp AND the guy is keeping YOUR silver in the SAME SWAMP, you better do something to get YOUR SILVER into YOUR SWAMP and into your house.

Then again, if you are happy to rely on the honesty and integrity of people in the silver business, encouraged by their open and transparent dealings and actions in the market, by all means leave your silver in the hands of some company to store it for you.

I'm sure you have nothing to worry about."

[AuNuggets]

Other related threads.........

http://goldismoney.info/forums/showthread.php?t=223950&highlight=kitco+pool

http://goldismoney.info/forums/showthread.php?t=195832&highlight=kitco+pool

http://goldismoney.info/forums/showthread.php?t=35650&highlight=kitco+pool

http://goldismoney.info/forums/showthread.php?t=34401&highlight=kitco+pool

http://goldismoney.info/forums/showthread.php?t=6675&highlight=kitco+pool

[AuNuggets]

BUYER BEWARE

by Theodore Butler [01/30/2007]

Most men treasure personal reputation as their most valuable possession. I know I do. With reputation comes responsibility, especially if you put your words in print for a wide audience. The last thing I want to do is to write something that would cause damage to the reader, particularly in financial matters. You don’t get a positive reputation by tearing other people down, or by making unsubstantiated claims, or by stealing someone else’s thoughts. You earn it by introducing and explaining ideas that help people.

Lately, I have been thinking once again about investment pool accounts and certificate programs for unallocated silver (and other precious metals). Although I have written about such accounts frequently in the past, I still get questions from readers. So let me be clear. My new thoughts lead me to believe that at some point it must end in disaster for both the buyers and issuers of these programs. I will try to explain why and convince you to the best of my ability to get out of these programs now.

What is a silver pool account or a certificate program for unallocated silver? In simple terms, these are purely paper promises or bookkeeping-only entries that are sold as an alternative for owning the specifically earmarked real silver of segregated or unallocated type accounts. For illustrative purposes, an example of a pool type account would be kitco.com www.kitco.com and for unallocated certificates the Perth Mint of Australia www.perthmint.com.au But they are not the only examples. Most people who buy this paper form of silver are not aware that there is no specific silver backing up these accounts, only a promise of some type by the issuer. If a problem develops either in the silver market (a shortage) or with the issuer (insolvency) the buyer could end up high and dry. The buyer pays full cash value for the silver, yet may not get the silver or the value of the silver.

I consider pool accounts and certificate programs with no serial numbers of bars on a par with the great failed experiment of leasing and forward selling of gold and silver by mining companies. Long-time readers may know that this issue was what prompted me to first write on the Internet, 10 years ago. To my knowledge, I was the first to write of the stupidity and manipulative effect of leasing. One great thing about the Internet and the printed word is the time record created.

For newer readers, leasing transactions failed because they didn’t pass the test of common sense. Great quantities of physical central bank gold and silver were dumped on the market through leasing. This artificially depressed the price (to below $300 on gold). The mining companies obligated themselves to pay back years of production at those depressed prices. It was an accident waiting to happen when the price rose and the transactions were unwound. Leasing participants were too concerned about transaction fees and cheap financing to step back and look at the big picture. They convinced themselves they were hedging, even though legitimate hedging never involves the physical short sale of a commodity or obligates years of production.

The disaster did occur, as it had to. Gold prices rose when the dumping stopped and gold was bought back (the silver has yet to be bought back). The cumulative losses to date in gold from this wacky experiment are in the tens of billions of dollars and there is still a significant portion left to be closed out. That’s tens of billions of dollars in losses from an idea that shouldn’t have passed muster.

Although it seems clear in hindsight just what a mistake this forward selling was, at the time it was an accepted practice that almost no one spoke against. I have a confession. Back when I publicly started writing about leasing and Barrick Gold and others involved in this nutty practice, I would sometimes wait for the process server to knock on my door with libel lawsuit papers. (Yes, there were many days I’ve waited for COMEX related papers, as well.)

What does leasing/forward selling have to do with pool accounts and unallocated silver storage? Quite a lot, in my opinion. For starters, they both sound good, until you think about what’s really involved. A transaction must be examined from the perspective of all parties to see if it makes sense, or even if it is legitimate. For the buyers of silver (or gold) in a pool or unallocated account, the great allure is that it is cheaper and easier than buying and storing real silver. Cheap and easy are powerful incentives, and, all things being equal, they win every time. And in today’s modern world, technology enables us to do many things cheaper and easier (like e-mail and online shopping and securities trading), so we’re not always suspicious of things cheap and easy.

Are all things equal between pool accounts and owning the real thing? Do you save enough to justify it? I don’t think so. (The real thing is actual metal segregated and held in your name by a large and reputable third party. That’s generally not the dealer you bought the metal from. In the case of 1000-ounce bars, professional storage identifies them by serial numbers.)

In the typical pool account or certificate program, the buyer incurs a very small sales charge and zero storage charges. Your common sense should tell you that this is only possible if there is no real silver being purchased. Zero storage charges equals zero real silver. So the trade-off for the buyer is that no real silver exists. There may be statements given by the issuer that there is real silver backing the pool or certificate account, but no specific proof. Further, there is usually a provision that the buyer can get real silver if he is willing to pay an additional charge. While this sounds reassuring, this should further prove to the buyer that no real silver backs a pool or an unallocated certificate account.

What about looking at these transactions from the issuers’ perspective? What’s in it for them? Well, certainly not sales commissions or storage fees. But these are for-profit organizations. They are in business to make money. How do they make money or even cover costs, if they don’t charge storage fees? They make it on the float, or the use of the buyers’ money. That’s the only way they can make money. The issuer puts the buyers’ money at interest or into the business. Since no actual metal back ups these pools, the financial strength of the issuer becomes a factor. In other words, it is not real metal that backs up these accounts, but the financial security of the issuers themselves. Make no mistake – these pool and unallocated certificate accounts are unsecured obligations of the issuing entity.

Now some people who are aware of these circumstances claim they are content doing business this way, because there have been no known problems to date. I can understand that, but things can change and how could you know if they did? Others would say the Perth Mint also offers a guarantee from the provincial government. I understand that as well, but real metal holders don’t need a government guarantee because unencumbered metal is an asset that is no one else’s liability. A pool account or an unallocated certificate account, by definition, turns an asset that is no one’s liability into an asset that is decidedly someone’s liability. That’s perverse.

In no way am I attempting to malign the reputations of kitco.com or the Perth Mint or any other issuer of pool or unallocated silver accounts. On the contrary, I am trying to save them and their customers great potential harm and heartache. My motivation in writing about leasing/forward selling ten years ago was to alert all participants to the inherent flaws in those transactions. By not heeding the warnings, the mining industry went on to lose tens of billions of dollars that would have enriched their shareholders.

My motivation today is similar. The worst thing that could happen to a silver investor is to have bought at the right time and then discovered, too late, that he held the wrong form of silver. I am convinced that silver in pool accounts and unallocated certificates are the worst form of silver and that it is highly likely, if not near certain, that they will end badly for all involved. That’s because the issuers are at risk in a price rise. As the price rises, the buyers are accruing profits and the issuers are accruing losses. The issuers have to actually pay out the losses only as buyers sell at a profit or convert their pool accounts or certificates to real metal. But there is no way of measuring the issuers’ total liability to the buyers. As long as only a few buyers are selling out, or if there are new buyers coming in, the cash outlays by the issuers may be minimal. As long as pool investors think silver is a buy or hold, they will not cash out and require the issuer to pay out cash. This can allow an issuer’s financial condition to deteriorate as the price rises. The only real issue becomes when is this likely to reach a tipping point? The obvious, if imprecise, answer is when the price is high enough to cause people to sell while no new buyers appear.

What I’ve just described is a classic Ponzi scheme, in which old investors are paid out with new investor money. The scheme can only last until new investors stop investing. Then it collapses. Do I think that any of the pool issuers intentionally set out to construct a Ponzi scheme? Absolutely not! Just as I didn’t think that Barrick Gold would intentionally deprive their shareholders of many billions of dollars with their foolish forward sales. Just as I don’t think some large trader at the COMEX woke up one day with the bright idea to intentionally manipulate the silver market with concentrated short sales. That’s not how things normally work in the real world. The way things work in the real world is that unintended consequences develop when people take questionable actions without thinking things through.

Pool accounts and unallocated silver certificates are a bad idea. They create unacceptable trade-offs. It costs a small amount of money to store and insure real silver. You can’t do it for free. You can store non-existent silver for free, but that’s a bad idea. Compounding the problem is the lack of public information. I’ve read the annual reports of the Perth Mint, and I am concerned with the lack of financial detail and their reliance on leased metal. Pool operators like kitco.com are private companies and financial data is not available. Worse still is the lack of regulatory oversight. If you think there’s a problem with the silver ETF, you can at least petition the SEC, or Barclays, a public company. The CFTC may sidestep complaints about the COMEX, but at least they have to go on record. Who oversees the pool accounts and certificate issuers?

Investors should rid themselves of these pool and unallocated accounts while they can. There are too many good alternatives for holding real silver. Also, a deployment out of non-existent silver to real silver will help the price. The issuers should stop dealing in these potentially ruinous financial concoctions, which are not central to their basic business. It may prove temporarily painful but, in the long run, it may save these businesses. Ten years ago, very few envisioned what damage leasing and forward selling would do to the miners. Years from now, I think the same thing will be said about pool and unallocated silver accounts.

[AuNuggets]

By James Turk


I continue to hear the horror stories. A subscriber tells me
that the bank where he stores his silver announced a three-fold
increase in fees. His bank therefore recommended that he sell
his silver "because it is expensive to store and has been a
poor investment." When he gave his bank notice that he
intended to move his silver to another location, the bank
backed down and said that his storage fee would not change.

I advised him to move the silver anyway. My reason? It
appeared to me that his bank was too eager to get him to
liquidate his silver. Maybe their trading desk is short
physical silver and is looking to get its hands on any
silver it can. If that is the case, who knows how safe his
silver really is?

Another subscriber tells me that his bank raised his
storage fees for silver to 2 percent per annum, apparently
thinking that additional expense burden would prod him
into selling. Again, his bank told him that silver has been
a poor investment and should therefore be sold.

My response was: Why has his bank suddenly taken this
great concern for the customer's well being after having
ignored him and his silver for years?

And the horror stories are not just for silver. I also have
been told things about gold that make one wonder about the
factors that are driving some banks to act as they are with
regard to metal placed with them for safekeeping.

The result of their actions has directly affected their
treatment of customers who store precious metals with
them. It appears that these banks are eyeing up the
metal stored in safekeeping for a purpose. And it is all
but certain that the banks taking these steps are not
doing it for their customers' best interests.

The sad fact is that most people do not completely
understand the intricacies of storing precious metals.
As a result, many people do not fully appreciate the
risks they are taking with their gold and silver, which
ironically has been bought by many people in order
to provide a risk-free way to hold some of their wealth.

Consequently, I have prepared this primer to provide
you with three storage basics to help you avoid
needless risks with your gold and silver.

1) Unallocated vs. allocated. These are the two most
basic methods of storage. When you store on an allocated
basis, you continue to own the gold. There is no transfer of
title. With allocated gold, you deliver gold bars to the vault
under a contractual agreement that the exact same bars
will be redelivered back to you upon request. But with
unallocated gold you become an unsecured creditor of the
bullion bank, and thus, in an unallocated account you
are at risk of the bullion bank's insolvency. So when you
store gold, it should be allocated.

2) Pool accounts. This term is used to mean that your
gold is commingled with the gold of other people, which
is easy to do because gold is a fungible commodity. There
are advantages to pooled gold, generally relating to
economies of scale and the resulting reduced fees that
are charged when the gold of many people is pooled. Pooled
gold can be allocated and unallocated. For example, in
GoldMoney all gold is allocated, and each user owns his
respective portion of the pool of allocated gold, which again
is the way that all gold should be stored. But in contrast
to the storage arrangements of GoldMoney, the pooled
gold of some firms is unallocated. Thus customers of these
firms own unallocated gold, which means that you are a
general creditor of the firm and at risk of the firm's
insolvency. Pool accounts are advantageous to use, and I
do recommend them -- but only when the pool holds allocated
gold. Avoid all other pool accounts.

3) "Gold" certificates. These certificates are common, and
are perhaps the most misunderstood type of storage
because they are not storage at all. The name is a
misnomer because you really don't own gold. All you own
is someone's promise to pay gold to you, which is the
basic nature of any "certificate." Let's say you have some
dollars and you go to your bank to make a deposit. As
evidence of the transaction, the bank gives you a
"certificate of deposit." You no longer own the money,
and you now become an unsecured general creditor
of the bank. This same principle describes how the
so-called "gold certificates" work. You don't really
own gold. Instead, you are an unsecured general creditor
of the bank, trading firm, or mint that issued you the
certificate.

In summary, everyone who owns gold has to distinguish
between paper and physical gold, which are very
different things.

I recommend that everyone own physical gold, and
there are two ways to accomplish this objective -- either
you take possession of the gold yourself or place your
gold in allocated storage. There are no other alternatives.

If you take possession of the gold, you must then be
willing to manage the responsibilities of holding physical
metal, and to take those required steps to make sure
that it is safely stored and insured. You also have to be
certain that you are purchasing gold from a reliable
dealer so that you are not receiving gold-plated bars
of lead or other base metal.

If you place your gold with others for storage, I
recommend that your gold be allocated. Do not place
your gold at risk in any way, and do not hold gold
certificates.

Gold certificates are not gold, despite what banks,
firms, or mints may tell you. These companies will
usually offer you all kinds of inducements to take
their certificates -- free "storage" being the most
common. But there is no such thing as a free lunch.
If a bank or mint is storing gold for you for free, it's
because you are a general creditor of that bank or
mint, which is now using your gold to generate
income.

Unallocated gold and certificates are not gold. It is
just someone's promise to pay you gold, and in a
crisis -- which is precisely when you need that gold --
it is likely that there will be a default on their payment
of gold to you.

The bottom line here is quite simple: Make sure your
gold is allocated. Do not take the risk of "gold
certificates."

[Stupid]

Although allocated account does have its benefit, when James Turks from goldmoney.com writes it, it raises cynics.

In the same way that he questions other "unallocated account," we can question his "allocated account."

The bottom line is that when you use pool account, you must consider the risk. don't even put all your eggs into one basket or one pool.

[Buchan]

For a metal like rhodium, it seems the only way you can invest directly in it is through a pool account like Kitco's. You can't find any rhodium bullion anywhere, and you can't sell it to anyone, unless you have something like a Kitco pool account. I had wanted to buy a couple ounces of rhodium before it made its rise last year, but there was nowhere to buy any from. I thought about a pool account, but I'd also heard that old adage, "If you don't hold it, you don't own it." Did I miss something, besides a big profit from a rhodium pool account?

[Gcubed]

For a metal like rhodium, it seems the only way you can invest directly in it is through a pool account like Kitco's. You can't find any rhodium bullion anywhere, and you can't sell it to anyone, unless you have something like a Kitco pool account. I had wanted to buy a couple ounces of rhodium before it made its rise last year, but there was nowhere to buy any from. I thought about a pool account, but I'd also heard that old adage, "If you don't hold it, you don't own it." Did I miss something, besides a big profit from a rhodium pool account?

Maybe check/research actual refiner suppliers? I'd start with Johnson Matthey or BASF. Just a thought.

[jabalong]

I have a related question to this old discussion of pools and creditors, allocated versus unallocated.

To my mind, aren't vehicles like Central Fund of Canada, BullionVault and GoldMoney also forms of pooled metal as well?

CEF for one describes itself as allocated. But it seems to me different people have different definitions of "allocated" and "unallocated". When CEF describes itself as allocated, it is referring to the fact that it has specific bars of metal that it buys and stores, which doesn't get leased out. So from the point of view of the whole service, there is allocated gold behind it. However, individual investors in CEF don't have specific bars of gold or silver to their name. So to my mind, from the investor point of view it is "unallocated" in the sense that if CEF were to go belly up all investors would just be creditors making a claim on that pool of gold and silver stored.

Likewise a service like BullionVault, though I'm not sure how it describes itself, is also very rigorous about owning specific audited bars of gold. But unless you have enough gold to make up a 12kg bar, and pay extra to have one assigned to you with the serial number in your name, then your gold also just sits in a pool, of which you would be a creditor in the worst case. Not sure about GoldMoney, but I understand it to work the same way.

Now don't get me wrong, I think as far as these things go, services like CEF and BullionVault are well set up. I just disagree with the idea that from an investor point of view they constitute "allocated" services. To my if you have bullion stored bought and stored somewhere, unless you have specific serial numbers of bars registered in your name as sole owner, then it's not "allocated". Am I wrong?

Lastly, anyone know of any truly allocated bullion sale and storage services where you can get specific bars registered to you below say the 12kg threshold for BullionVault?

[Firenhole]

Jabalong, I see you are knew to GIM...WELCOME :beer: There's a GIM living legend who coined the phrase "IF you don't hold it, You don't own it!"
I know this doesn't answer your question but if there's anything between you and your metal, well "You don't..."

[jabalong]

Thanks for the welcome Firenhole and I hear ya.

In the end, it's probably splitting hairs as we talk about the degrees to which you don't control your metal. But if you can't have the metal in your hand, then probably actual specific bars or coins that belong specifically to you is the next best. After that to my mind it's all unallocated pools, of which those with real bars and coins that stay put are better than the more virtual shifting pools that get leased out. After that it's all just paper. At least this is my thinking.