31 March 2011

Closing Unallocated

In the entire time I have worked in the Depository business (since 1998) through the many times I have explained our unallocated "business model", the one thing that has surprised me is no one asked a very simple question, a question that cuts to the core and would reveal whether the Perth Mint had any integrity and whether we were lying about unallocated:

"So if it is funding working inventory, you will have to close it at some point, yes?"

That point has been reached with silver as announced on the corporate blog. Gold will follow in due course, possibly quite quickly once people realise the best storage deal in the world cannot continue forever.

You would not be surprised to know that our Certificate Approved Dealers were not overly happy about it - which business wants to stop selling its best product line - but it could not go on forever.

Of course the move has raised questions, and I'm currently managing four discussions on it (Ed Steer, Kitco, Gold is Money, SilverStackers).

This move should now raise another important question, but I'm not going to wait in case no one asks it:

"So if the West Australian Government is on the hook for the Perth Mint, surely there is a limit to how much they can guarantee, so therefore a limit to Depository?"

Answer is yes, at some point Depository will also close Pool Allocated and Allocated. When is an open question depending on how fast metal flows in and what happens to the gold price. But the day will come. The Government does not have the financial capacity or willingness to guarantee massive precious metal liabilities.

This suits me fine and should suit our clients, as the bigger you are the bigger the target - theft and political.

Many people just don't get this about the Perth Mint. It is not some money hungry management team looking to take on leverage and grow for the sake of growing and bonuses. It is conservative and about looking out for the interests of its clients. When we end up closing the whole Depository business to new clients, maybe the message will get through. Problem is it will be too late for some.

PS - an excellent analysis and history of the Liberty dollar case.