Who is buying unallocated silver? What are the risks?

[SpacePete]

Like everyone here (I presume) I have some physical silver, but I also have purchased unallocated silver because of the following advantages:

- I don't need to worry about security or storage
- The premium is low
- I can convert to bars or coins if required.

So I'm wondering, who else here also purchases unallocated silver and do you agree with the advantages listed above? Any other advantages I have missed?

And I am curious about any possible risks.

Thanks.

 

[pi]

I am buying unallocated in small amounts regularly, purely because I want to stack some badass 100oz bars but can't afford to buy them off the bat.
It's also a savings strategy that suits me well.

 

[XB]

AG/AU swaps can be easy, fast and comparatively inexpensive

 

[HOWUDN]

I use it regularly and when I have enough I trade it for physical silver to get those special coins or bars I see it as an advantage to accumulate some ounces to build a bigger stack. I don't see myself ever buying some and then keeping it as unallocated forever that I feel is a bit risky

 

[goldpelican]

Certainly worth asking the question "do you have a share of the $130m tax bill handed out last year?".

 

[Pirocco]

And I am curious about any possible risks.

Depends on the product offered.

One of the reasons I own precious metals is a lower level of counterparty risk compared with traditional assets. Buying an unallocated product potentially exposes you to the solvency of the company offering the product, which is counterproductive to my reasons for holding the metal.

What do the terms & conditions for the product say? Is there a product disclosure statement which outlines any of the risks?

Yes, my entire reason to have savings as silver is to become independent of what is named 'The System', being the heavily central planned entirety consisting of a population part that wants to take without giving and get away with it unpunished.
Even alot, if not all, 'allocated' methods fall within The Systems reach, being that they force them to report, as to tax and whatever else they may come with.
The easiest job for them is with some central places alike funds that sell whatever including unallocated silver, the hardest job for them is with numerous decentralized unreported private properties.
Unallocated is nothing but, once again, a promise, that can be broken, with you powerless watching.
So 'any possible risks', well haha, these are about the same as what you tried to evade along silver in the first place.
As said, it's more (much more) to snag out some free dollars, basically the same game as the money for nothing club, where a gain implies a loss, and the major risk thus sitting there, instead of sitting at the 'unallocated' status. So you'd better be curious about the risks involved in the buy>sell>buy back in>rinse and repeat game.
(the 'you' here not addressed to the quoted, but to the topics questioner)

 

[SpacePete]

Certainly worth asking the question "do you have a share of the $130m tax bill handed out last year?".

Are you saying that the bullion dealer may be hit with a tax bill and the physical silver used to back up the client's unallocated holding maybe be sold off to pay the ATO?

 

[SpacePete]

I am buying unallocated in small amounts regularly, purely because I want to stack some badass 100oz bars but can't afford to buy them off the bat.
It's also a savings strategy that suits me well.

This is a good idea that I hadn't considered. You are averaging the price across multiple smaller unallocated purchases rather than committing to the 100oz price all at once. Interesting.

 

[SpacePete]

And I am curious about any possible risks.

Depends on the product offered.

One of the reasons I own precious metals is a lower level of counterparty risk compared with traditional assets. Buying an unallocated product potentially exposes you to the solvency of the company offering the product, which is counterproductive to my reasons for holding the metal.

Counterparty risk. Great point. I had better make sure I am familiar with the terms & conditions.

 

[goldpelican]

Certainly worth asking the question "do you have a share of the $130m tax bill handed out last year?".

Are you saying that the bullion dealer may be hit with a tax bill and the physical silver used to back up the client's unallocated holding maybe be sold off to pay the ATO?

No - but it's pretty public information that $130m in assessments was handed out to a few businesses in October last year. No-one knows which businesses were assessed, but it should be a due-diligence question you ask before selecting an unallocated account provider.

I'm assuming you're referring to unallocated as a metal account product with a retail bullion dealer, not an ETF style product that most of the internet blabber about being unbacked unallocated is alleged.

 

[SpacePete]

Certainly worth asking the question "do you have a share of the $130m tax bill handed out last year?".

Are you saying that the bullion dealer may be hit with a tax bill and the physical silver used to back up the client's unallocated holding maybe be sold off to pay the ATO?

No - but it's pretty public information that $130m in assessments was handed out to a few businesses in October last year. No-one knows which businesses were assessed, but it should be a due-diligence question you ask before selecting an unallocated account provider.

I'm assuming you're referring to unallocated as a metal account product with a retail bullion dealer, not an ETF style product that most of the internet blabber about being unbacked unallocated is alleged.

Woah, I didn't know about this! I just googled and found the summary on Bullion Barons blog. And yes, I'm referring to an account with a bullion dealer.

Now I have to ask, can you recommend a secure storage facility or vault in Sydney?

 

[House]

Now I have to ask, can you recommend a secure storage facility or vault in Sydney?

Guardian Vaults is my recommendation. Impressive security and good prices. Currently selling 100oz PM Ag 1.5% over spot

 

[SpacePete]

Now I have to ask, can you recommend a secure storage facility or vault in Sydney?

Guardian Vaults is my recommendation. Impressive security and good prices.

Thanks. I've also found Custodian Vaults in Sydney which is in the same street as Guardian Vaults (Castlereagh Street). Looking at the web sites, both seem to have some affiliation with bullion dealers.

 

[JB3]

I have some physical and some in allocated accounts. I entirely accept that there are risks with allocated accounts, but I can't understand what advantage unallocated accounts offer to accept the even higher risk of them?

Why loan them your silver when you could just get them to keep yours for you in bailment?

Is it a cost thing? Because the costs are pretty negligible, if you choose the right deal for your particular hoard.

 

[SpacePete]

I have some physical and some in allocated accounts. I entirely accept that there are risks with allocated accounts, but I can't understand what advantage unallocated accounts offer to accept the even higher risk of them?

Why loan them your silver when you could just get them to keep yours for you in bailment?

Is it a cost thing? Because the costs are pretty negligible, if you choose the right deal for your particular hoard.

I don't think there is much difference between allocated and unallocated, at least as far as I understand. Unallocated is still backed by actual physical silver or gold in storage, its just that you buy the right to a percentage of it rather than the right to a discrete lump of metal.

 

[goldpelican]

Are you saying that the bullion dealer may be hit with a tax bill and the physical silver used to back up the client's unallocated holding maybe be sold off to pay the ATO?

No - but it's pretty public information that $130m in assessments was handed out to a few businesses in October last year. No-one knows which businesses were assessed, but it should be a due-diligence question you ask before selecting an unallocated account provider.

I'm assuming you're referring to unallocated as a metal account product with a retail bullion dealer, not an ETF style product that most of the internet blabber about being unbacked unallocated is alleged.

Woah, I didn't know about this! I just googled and found the summary on Bullion Barons blog. And yes, I'm referring to an account with a bullion dealer.

Now I have to ask, can you recommend a secure storage facility or vault in Sydney?

Obviously only a handful of businesses are affected by the tax issue - and they may not even be dealers, it may be refiners or scrap buyers. It's just a question for your due diligence phase. There hasn't been a client loss of unallocated in Australia since the 90s when a dodgy dealer in Sydney went bust.

In Sydney there are Guardian and Custodian, both in the CBD. Both are affiliated with dealers or have their own bullion dealing arms. Some dealers like to get into the storage business, some storage businesses like to get into the bullion business.

 

[Pirocco]

I have some physical and some in allocated accounts. I entirely accept that there are risks with allocated accounts, but I can't understand what advantage unallocated accounts offer to accept the even higher risk of them?

Why loan them your silver when you could just get them to keep yours for you in bailment?

Is it a cost thing? Because the costs are pretty negligible, if you choose the right deal for your particular hoard.

I don't think there is much difference between allocated and unallocated, at least as far as I understand. Unallocated is still backed by actual physical silver or gold in storage, its just that you buy the right to a percentage of it rather than the right to a discrete lump of metal.

'the right to a percentage of it'?
You don't have any right on the metal.
Your property is not the metal, it's the fiatvalue associated to the derivative of the metal, and that fiatvalue is to be paid by the management of the fund, and if they manage it bad, then the fiatvalue of your derivative, your property, went to some1 else, regardless who the latter is (govt in case unpaid tax, vacation trips hotels on hawaii, etc).
With 'allocated', not the derivative of the metal, but the metal itself is registered as your property. They actually just store your property for you, and as such discoupled from their business and what happens to it. At least as far as government doesn't start to act ugly openly (read: confiscation) of course.

To answer JB3's question, he major reason why some people accept the negative risk involved with unallocated is because they think that the positive risk of profit due to price movements due to other peoples stupidity (that's the chain of cause to consequence eheh?), is bigger. If that stupidity would be absent, then they would never accept the risk associated with unallocated, because then there isn't a positive risk going against its negative risk.

 

[SpacePete]

I have some physical and some in allocated accounts. I entirely accept that there are risks with allocated accounts, but I can't understand what advantage unallocated accounts offer to accept the even higher risk of them?.

I don't think there is much difference between allocated and unallocated, at least as far as I understand. Unallocated is still backed by actual physical silver or gold in storage, its just that you buy the right to a percentage of it rather than the right to a discrete lump of metal.

'the right to a percentage of it'?
You don't have any right on the metal.
Your property is not the metal, it's the fiatvalue associated to the derivative of the metal, and that fiatvalue is to be paid by the management of the fund, and if they manage it bad, then the fiatvalue of your derivative, your property, went to some1 else, regardless who the latter is (govt in case unpaid tax, vacation trips hotels on hawaii, etc).

Are you describing an ETF option? Do bullion dealers backup their unallocated silver commitments with an ETF?

 

[goldpelican]

Do bullion dealers backup their unallocated silver commitments with an ETF?

That would vary dealer to dealer - but unlikely. Much more likely is the use of CFDs or a futures contract for those dealers who do use instruments to partially or fully back unallocated. Being in the trade I know that there are definitely dealers in Australia that are using physical to fully back their unallocated liabilities. Again, a due diligence question.

Even if a dealer was using a CFD or a future, it is a margin-based instrument - so the dealer will still have 90% of the cash on hand, unlike an ETF where they are essentially paying the full value of the silver to the ETF provider (so using ETFs at the bullion dealer level to back unallocated liabilities does not make sense). Should the CFD or futures contract fail, the dealers' exposure is just to the spot movement since the unallocated liability was sold (usually covered by the margin that was outlaid), not the entire value, and quite possibly only a minor amount, so it is most likely a weatherable event for the business.

I would be much less worried about whether a dealer was using CFDs/futures to help manage their unallocated position than general due diligence like reputation, director history, meaningful distributor relationships (meaning other businesses have done their due diligence on the company), $130m tax assessment exposure, etc.

 

[Pirocco]

I don't think there is much difference between allocated and unallocated, at least as far as I understand. Unallocated is still backed by actual physical silver or gold in storage, its just that you buy the right to a percentage of it rather than the right to a discrete lump of metal.

'the right to a percentage of it'?
You don't have any right on the metal.
Your property is not the metal, it's the fiatvalue associated to the derivative of the metal, and that fiatvalue is to be paid by the management of the fund, and if they manage it bad, then the fiatvalue of your derivative, your property, went to some1 else, regardless who the latter is (govt in case unpaid tax, vacation trips hotels on hawaii, etc).

Are you describing an ETF option? Do bullion dealers backup their unallocated silver commitments with an ETF?

No, I'm describing a derivative, as such, of which an ETF option is an example, and unallocated silver another example is. You don't own the asset itself, only a representation of it.

And to add: it IS possible that a bullion dealer has ETF derivatives, actually anything can serve as 'backup' for unallocated silver. And not only backup but also, and especially, hedging. Put yourself in the place of a bullion dealer offering unallocated silver. When the price is $X some people buy unallocated silver, 2 years later when the price is $2X those people sell it. In the end, SOMEONE has to pay that X profit, and if you, as a bullion dealer, don't hedge against it, it's you that is paying those people X profit, and are the losing side. There is lotsa criticism on the Comex, JP Morgan, etcetera, but a futures market serves for a big part as a hedging environment, where people that plan to buy, or sell silver, hedge against price movements due to the money for nothing temporary buyers club, meaning that these futures contracts give them a compensation for the loss, at a cost of a possible profit due to the price movement.
A net zero, neutral, position of a bullion dealer that has 10000 ounces in stock, is 2 short positions of 5000 ounces. He gives away all profit he may have due to price increases, but he also gets compensated for all losses due to price drops. And a bullion dealer / anyone, doesn't have to hedge his silver stock with silver futures, if there is another market whose price usually moves with silvers, or usually goes against silvers, then he can hedge himself there (first case short, second case long)