Bad actors, greedy opportunists and even outright fraudsters have long been endemic to the retail gold market - they are probably as old as the market itself. This is precisely why we havewarned our clients and readers so many times against these dangers, why we routinely alert them to countless different threats and traps, and why our most oft-cited piece of advice tendsto be “if it sounds too good to be true, it most probably is”.

When the pen started hitting the paper for this article, “The Great Train Robbery” immediately came to mind. Not the 1963 robbery of £2.61 million from a Royal Mail train heading from Glasgow to London, nor the 1903 American silent film of the same name. I’m referring to a film released in 1979 in the U.S. that starred Sean Connery and Donald Sutherland. I was perhaps 9 years old when I first saw it, but for whatever reason, the plot stuck: in 1850’s England, a master thief plots to steal a large sum of gold from a train. I don’t think it will take long to figure out where this is going.

The subject “robbery” we are writing about today came up during a recent business trip to the US. This trip gave us the opportunity to engage in numerous fascinating conversations, and to see and hear firsthand issues on top of the minds of American investors, both professional and individual. One of the most memorable topics was the question of retirement planning in these uncertain times. Clearly, investors and savers on both sides of the Atlantic share many similar fears and concerns, but the tools they have at their disposal are significantly different.

Many of our US clients will likely be familiar with the concept of “gold IRAs”, their pro’s and con’s, their structural advantages and built-in limitations. But we’re pretty sure they’ll still benefit from taking a fresh look at this retirement instrument and from obtaining an updated understanding of the risks it carries today. As for all of our other clients and readers, we hope that the analysis that follows will be as interesting as it will be constructively informative - or at the very least, we hope it will provide food for thought.

What is a Gold IRA and why is it so popular?

A Gold IRA (Individual Retirement Account) is a specialized type of retirement vehicle that allows individuals to invest in physical gold and other precious metals as part of their retirement portfolio. Unlike traditional IRAs, which typically include a mix of stocks, bonds, and mutual funds, a gold IRA is specifically designed to hold precious metals like gold, silver, platinum, and palladium.

Similar to traditional IRAs though, gold IRAs offer potential tax benefits. This means that any profits from investments held in the IRA aren't immediately taxable. In the case of a traditional gold IRA, there are tax deductions on contributions, while a Roth gold IRA offers tax-free withdrawals in retirement. What’s more, gold IRAs are “self-directed”, thereby giving investors greater flexibility and control over their investments. With this type of account, investors can make their own decisions and choose the assets that best suit their strategic goals (within specific  parameters and limitations imposed by the IRS).

However, even beyond the obvious tax advantages, there are additional benefits that the gold IRA brings. For example, as opposed to other retirement investment solutions, a unique aspect of gold IRAs is that they allow investors to hold physical metals in the form of bullion coins and bars. Of course, the aforementioned IRS limitations mean that you cannot simply buy a dozen gold bars and bury them in your backyard as part of your gold IRA – but you can still own physical metals directly by opening an account through a gold IRA provider or specialized custodian that offers the relevant services.

Gold IRA providers are abundant in the US, providing services such as account setup, facilitation of purchases and storage, as well as proper reporting and compliance. They can additionally assist investors in transferring or rolling over funds from other retirement accounts into their precious metals’ IRAs, while they also consult them on their investment options and offer general guidance on managing a precious metals IRA.

'A matter of trust'

Because the custodian’s role is so integral to the proper management and tax/regulatory compliance of the gold IRA, and because the latter can be very complicated for a “civilian” to navigate alone, many retail investors place their faith (along with their investments’ fate) entirely in the hands of “gold IRA experts”. Some are indeed worthy of that trust: they are reliable, experienced, and professional. In fact, we know a fewthat you can really count on. But others are not.

It is important to note at this point that many gold IRA providers are not actually regulated custodians themselves. Very often they have an agreement with a custodian that allows them to use their structures and services, while they solely focus on sales without any restrictions and other regulatory burdens. As the Commodity Futures Trading Commission (CFTC) highlights, “even if they call themselves 'IRA experts’, precious metals dealers often times are not licensed or registered to provide investment or trading advice to retail customers. They are typically salespeople who are paid commissions based on the products they sell. Unlike financial professionals who have a fiduciary responsibility to you, these dealers are not obliged to have your best interests in mind. As a result, commissions and profits often drive their recommendations.”

To be clear, it is true that gold IRAs will generally incur higher fees than traditional IRAs, as they encompass storage and insurance costs. This extra cost is to be expected and it is the price that investors pay to include a tangible, reliable and inflation-proof asset like gold in their retirement portfolio. That being said, one of the most prevalent dangers associated with disreputable gold IRA providers is the practice of overcharging customers through opaque, complicated fee structures, “fine-print” expenses, and charges and hidden costs.

Obviously, this translates into a lot of unpleasant surprises down the road with many investors suffering heavy, unexpected, and unnecessary losses. Most of the time, these losses become apparent quite quickly, but sometimes they can go unnoticed for a surprisingly long time. For example, during gold rallies, investors tend to focus on the bottom line (quite literally): once they see gains on their account, they feel content and they generally don’t bother to investigate any further. Thus, they never realize how much more they could (and should) have made if their IRA provider wasn’t overcharging them and eating into their profits.

But even before all this, before one ever reaches the point of having to tackle surprise fees or overblown storage or insurance costs, bad actors will lay traps for unsuspecting investors from the very start - most deceitful companies sink their teeth into their pray at the purchase decision stage, by offering self-serving advice on what kinds of formats they should invest in.

Instead of recommending industry standard bullion bars and coins, many gold IRA providers will instead promote collectible or “numismatic” coins. While those are perfectly compliant gold IRA investments, they can come with ludicrously higher premiums that can range anywhere from 40% to 200% above the spot price. As a result, the amount of actual gold the client is buying pales in comparison to what they would get ifthey opted for more commonly circulated and traded formats.

A pertinent example was presented in a Washington Post report, back in July, which recounted the ordeal of Ed DeSanto, a 65-year-old Floridian, who invested a $100,000 lump-sum payout from his pension in a gold IRA in 2019: “DeSanto’s $100,000 investment netted him just $53,000 worth of gold and silver, according to aPost analysis of his invoices — meaning the coins had been marked up 92 percent over the value of the metal.” It might sound like an extreme worst-case scenario, but losses of that magnitude are by no means unique.

Too many investors, especially those who are unfamiliar with the gold market, are convinced by dishonest and unscrupulous gold IRA companies that the value of these “premium” coins is certain to go up, as they are often produced in limited quantities and are therefore rare. The company argues that the coins’ rarity ensures their ever-increasing value, according to basic laws of supply and demand.

However, this very rarity actually guarantees the exact opposite outcome, namely a collapse in demand, as obscure formats like that are difficult to objectively value and are generally extremely illiquid. In many cases,investors who need to liquidate fail to find a buyer for these coins in the open market and are forced to sell them back to their gold IRA provider at a fraction of the original purchase price.

Easy pickings

The dangers of employing these kinds of devious and underhanded practices are compounded by the kind of people they are aimed at. Unfortunately, the primary targets of these tactics are the most vulnerable, most trusting, most generous and often Americans with no one to warn or to defend them: the elderly. As the aforementioned Washington Post article reported, there is a worrying and long-established trend of gold IRA providers, ranging from those with questionable reputations and practices to those with actual charges and convictions, that are systematically targeting older people.

They specifically and purposefully do this through ad placements in media outlets their targets follow and through paid endorsements from news personalities or political figures they trust. We’ve read about these type of cases going back to 2010, when Goldline, a company promoted by talk radio and TV host Glenn Beck and Fox News at the time, settled in court for defrauding customers on their gold IRAs: they never admitted to wrong doing, but still agreed to refund $4.5M to former customers.

In most cases, back then and today, the content appears “organic”, i.e. there is no clear disclaimer or other indication that the individual or the platform has been (or will be) paid for this promotion. The sales pitch is often tied to conservative messages and intertwined with commonsensical arguments, like the fact that US government spending and debt is out of control, or that the Fed’s monetary policy direction poses a threat to responsible savers and that the most reliable hedge against it all is gold.

All of this is true, of course, and physical gold is indeed the most reliable hedge against it. Just not the kind of gold these advertisers are offering. Clearly, absurdly overpriced, comically illiquid, and hopelessly unsellable coins are not a sound investment - especially when paired with hidden fees and exorbitant charges. High-pressure sales tactics, almost reminiscent of the 80’s boiler rooms, are also reportedly used,  either to compel prospects to buy “now or never” or to push existing clients to “go all in before it’s too late”. Seniors are particularly vulnerable to these aggressive techniques. They are also very unlikely to scrutinize the terms and conditions, fee structure and fine print of the contract they are presented with.

Over the last year, the SEC and the CFTC have filed suits against gold IRA companies for targeting and defrauding elderly people. This might bring about a meaningful change, or it might amount to nothing - only time will tell. For now, though, the “Great (US IRA) Train Robbery” continues.

The best defense against predators, crooks and fraudsters remains one’s own informed judgment. This is why in the next issue of the Digger, we’ll dig even deeper into the subject, looking at specific “red flags” and outlining what investors need to look out for to protect themselves.

A look back and a look ahead

There is a remarkably diverse multitude of words that could be used to describe 2023, but“boring”, “predictable”, or “uneventful” were certainly not amongst them.

It was a very difficult year for so many different people and for so many different reasons. And it was a year that relentlessly strained the working class, while pushing whatever remained of the middle class in most advanced economies even closer to extinction.

The monetary U-turn and the interest rate hikes crippled economic growth, pushed many small and mid-sized companies to the brink, and countless ordinary households found themselves in truly dire straits. All these sacrifices, painful as they were, were supposedly made in the service of a greater goal and for the greater good. They were supposed to fight inflation, to bring down the runaway prices that had made most paychecks shrink, and in many cases, rendered even the bare necessities unaffordable.

Perhaps it might have all been worth it if that goal had actually been achieved. Unfortunately, it wasn’t - not to any meaningful extent, nor for any meaningful length of time. Instead, inflation persisted, and in combination with the monetary tightening, it dealt a very heavy blow to the real economy. As is usually the case, the poorest and the weakest were hit the worst.

As might be expected, sociopolitical tensions flared up once again and the divide grew even wider between “left” and “right” in most western nations. The hope for constructive dialogue and collaboration was decisively dimmed. Political, social, and institutional leaders doubled down on their divisive rhetoric, while social media widened and cemented the schism within societies.

Of course, the threats that social media pose are nothing new. All these platforms have been built upon and reliably thrived upon the assurance that each of their users would never be challenged with an opposing view. In other words, that they would exclusively and consistently only be “served” with confirmations, vindications, and validations of their own opinions.

To most sensible and mature readers, such a model will most likely seem absurd and wholly unappealing. However, for the vast majority of the younger generation, this is irresistibly captivating and all too often literally addictive. For this all-important young audience, that constitutes the voters, the taxpayers, the employers, and the workers of tomorrow, these platforms serve as primary tools of socialization, of education, of entertainment, of escapism, of exploration and of information.

We have lived with the real-life implications of all this for quite some time now, but 2023 showed us that what we knew so far was probably only the tip of the iceberg.  As OpenAI unleashed its ChatGPT onto the world and brought AI into the mainstream, its potential has captured public imagination, regulatory concerns, and investment interest. As Big Tech is already integrating AI capabilities in their product offering and existing platforms, there are serious fears over its impact on society, ranging from a wave of redundancies and unemployment to further political divisions, and the manipulation or even weaponization of information.

Geopolitical shifts

Over the last year, this already rather dispiriting picture of the economy and of society only got gloomier and grimmer thanks to geopolitics. The war in Ukraine showed no signs of de-escalation and the efforts of the international community provided no realistic hope for a diplomatic solution or swift end to the hostilities. And then, as if this bloody and brutal conflict wasn’t enough, on October 7, another one erupted.

The attack by Hamas against Israel on that harrowing day sent shockwaves around the globe. The ruthless massacre of 1200 people, mostly civilians, the savage slaughter of elderly and vulnerable victims, of women and of innocent children, was sickening to see. The abduction of over 230 hostages, including disabled people and even babies, only served to emphasize the abhorrent nature of this terrorist attack.

Unsurprisingly, the retaliation was swift and severe. Israel vowed to eradicate Hamas as to try to guarantee that a horrific strike like this would never happen again. In pursuit of that goal, the Israeli government unleashed the full might of its formidable military upon Gaza. So far, over 20,000 Palestinians have been killed and while a short-lived ceasefire deal achieved the release of some of the Israeli hostages, the fate of those that are still held by Hamas is unclear. The scale, the force and the duration of the reprisal campaign eventually drew criticism and divided the international community. This was reflected in the recent move by South Africa, which was supported by over 65 countries,  to file a case the International Court of Justice accusing Israel of “genocidal acts”.

In both the Middle East and the Ukraine war, the devastating and senseless loss of thousands of human lives on all sides is only helping to ensure that even if and when hostilities finally end, true reconciliation, mutual forgiveness, and functional, peaceful coexistence are all goals that can only be optimistically achieved in the very long term, if even at all. Obviously, those directly and physically impacted by these conflicts have suffered the most and continue to do so. However, these crises also have very serious implications for the rest of the world.

We have repeatedly discussed the divide between the West and the Sino-Russian sphere of influence and all its political, economic, and monetary implications in previous editions of the Digger. It is clear by now that this divide is only getting wider and increasingly entrenched, particularly after the Russian invasion of Ukraine. After this latest conflict, the “lines” are even clearer, and even more nations are picking sides as the world seems more divided than at any other time in recent memory.

Gold price at all-time highs

Investment Implications

This global divide carries clear geopolitical and national security risk, which is clearly reflected in the exploding defense budgets of most advanced economies.  It also raises serious questions surrounding the breakdown of global trade and the return of protectionism - in one form or another. However, even beyond these obvious issues we have been facing and will most likely continue to face in 2024, these deepening divisions can threaten the individual investor and ordinary saver directly.

For instance, one of the first questions that spring to mind is the issue of de-dollarization. While we at BFI Bullion don’t expect the USD to be suddenly dethroned tomorrow and to lose its status as the world reserve currency overnight, we do recognize the value of being adequately prepared, even for scenarios that seem ludicrously improbable from our present vantage point. Sure, the efforts by China and Russia if not to replace, at least to circumvent, the USD have been so far notable, but not game changing - not yet anyway. But given the recent expansion, the economic significance and leverage of BRICS+, in combination with the current active conflicts, can anyone confidently dismiss the possibility of a systemic shift like that? After all, if we’re being honest, in this market and given these risks we face today, would you rather secure your payment in any contract in dollars or in gold? What if the contract runs for 3,4, or 5 years? What would you trust more?

And then we have other risks to consider, even if they are not directly or obviously linked to geopolitics. Giventhe fact that we all surely understand by now that the inescapable result of expansionary monetary policies, of easy money, and of excessive government spending is inflation, and given the fact that leading central banks like the Fed and the ECB are quite clearly paving the way for yet another U-turn and a return to rate cuts and monetary easing, what can any sensible investor or any ordinary citizen expect going forward?

As we highlighted in previous issues of the Digger and in our Group’s Special Report, it is evident that centralbankers are terrified of hiking rates “too much” (hiking high enough to fight inflation, but not so high as to trigger an actual recession). Instead, as is historically consistent, they are choosing to play it safe.

Even though inflation is still far from the 2% target, a premature return to easing is necessary in order to avoid bringing the economy to a standstill. This is especially relevant in the case of the Fed, as the US is now entering an election year. While this could provide some short-term relief to companies struggling to secure cheap credit and to households currently crippled by mortgage or consumer debt, the end result will be to fuel inflation once again.

Of course, this will benefit precious metals investors in the longer term. However, even in the more clearlyforeseeable future, the safe haven that gold and silver provide will very likely be in high demand, especiallyin combination with lower interest rates.

The global geopolitical and economic uncertainty already convinced countless institutional and retail investors of the need to protect themselves from the risks ahead and the last weeks of 2023 already paved the way for very strong year for precious metals. After climbing from all-time high to all-time high in December, we – the precious metals investors - have many reasons to be optimistic for the new year.

BFI Bullion - By the Numbers

As we were heading toward the end of 2023, and as we started this Digger, I thought it was prime time to break down “some of the numbers” behind BFI Bullion for our readers. How many clients do we have storing with us, what did they purchase this year, and how are they storing? Diving into the numbers never ceases to surprise!

It initially started earlier in the month of December as a preparation for our annual Christmas team event, where we tend to cull out some of the details of our inner workings to share with our colleagues from the entire BFI Capital Group. I figured then, since we had started the process, I would dig deeper than usual this time, and then share my findings with our readers too.

Where do our clients reside?

At BFI Bullion we have over 800 clients. Roughly 780 of them have metals stored with us currently, and another 30 or so  have either applied and are ready to go, or they recently sold or took delivery, but we know they are going to be investing again. Let’s call it 810 clients for a nice round number. Of those 810 clients, roughly 40% are in Europe, another 45% are from the United States, and the rest are from the rest of the world.

For European investors, the top three countries where the majority of the clients reside, starting with thehighest, are (perhaps not surprisingly) Switzerland, then the Netherlands, and both Belgium and the UKrounded out that top 3.

For the United States, likewise not surprisingly, the majority of our clients are in Florida. California takes second place, followed by Texas. However, beyond the "top 3", we have investors from 41 of the 50 states…  leaving us 9 to shoot for in 2024!

Last but certainly not least, the remaining 15% of our clients that aren’t in the US or Europe reside in so many and different parts of the world: Canada, Thailand, South Africa, Singapore, New Zealand, Panama, Australia, Japan, Cambodia... just to name a few.

In fact, you may be as surprised as I was to learn that BFI Bullion actually has clients living across 80different countries around the world!

What were they buying in 2023?

Of all purchase transactions during 2023, if going by the orders placed during the year, gold was the overall“winner” by a long shot:

Percentage of total purchase transactions:

• 71% Gold
• 25% Silver
• 4% Palladium and Platinum

As far as the favorite formats to buy this year, the top three amongst gold bars were the 1oz bar, the 100gr bar, and the 1kg bars. Many clients used the 1oz bars to top up purchases of other metals.  Canadian Maple Leafs were the favorite 1oz gold coin, followed by the Krugerrand, Britannia, and the American Eagle, which all had similar numbers.

With silver bars, the 1kg bars were the most popular, although we saw more purchases of 30kg (avg) silver standard bars than ever during the year. The standard bar isn’t a “standard” product that we offer, but they sure popped up on the radar this year. For silver coins, the Maples came out on top, followed by the American Eagle, and we also saw a good run of the 1oz silver Armenian Noah’s Arc coins, a special coin we can get here in both gold and silver.

Platinum and palladium were less in demand, as usual. Nevertheless, for platinum, we still purchased quitea few 1oz bars and 1oz Tudor Beasts (UK) coins. And for palladium, it was all 1oz bars.

How are they storing?

The total value of the metals our clients have in storage is a moving target and changes regularly. At the endof December, it was around USD 360M, based on the spot price at the time.

Collective Storage (COL) accounted for 196M of that, or roughly 54%. Of this 196M in storage, 82% was gold,17% silver, and the last 1% platinum and palladium.

Segregated Storage (SEG) accounted for roughly 136M of the total value of metals in storage, or roughly 38%. Gold represented 89% of that value, silver 10%, and the rest was platinum and palladium. It is important to note that all of our institutional clients (banks, funds, etc.) use SEG storage, which perhaps helps put the numbers in context.

Finally, Keybox Storage (KBS) accounted for roughly 27M of the total value of metals in storage, the last 8%.The majority of metals in KBS is gold, due to the size of the boxes.

As for the jurisdictions that our clients are storing their holdings in, 97% of all metals are stored inSwitzerland, 1% in Singapore, 1% in Miami, and London and Hong Kong round out the rest.

That is how things wrapped up for 2023, and we look forward to another successful year ahead!