Casey Files:
 The Gold Storage Solution: Switzerland
A BIG
GOLD Special Report
From Casey
Jun 19, 2009
At Casey Research, our task
is to accurately forecast trends, do it early, and help investors
profit from what we've found. Without claiming infallibility,
we've gotten it right more often than not, and by distinctly
profitable margins.
But research to anticipate
what to expect is the easy part. It's the when-to-expect-it-to-happen
that's tricky, and waiting for a predicted trend change or crisis
sometimes can test our confidence. The crisis we warned about
years ago is now here, and its arrival has altered many of the
rules for investing.
If you're reading this report,
you probably followed our earlier advice and have accumulated
a nice-size crisis insurance policy in the form of physical gold.
Now you need to decide what to do with that stash of Midas cash.
It may have been born in a corner of your sock drawer, but perhaps
now it's stress-testing an attic rafter. Unlike gold ETFs and
mining shares resting digitally in your brokerage account, physical
gold brings with it questions of space and place: how and where
to store it.
As to the how, the most common
methods for storing physical gold will be obvious to most investors:
concealment, a home safe, or a bank safe deposit box. In BIG
GOLD, we recommended using a home safe because 1) it keeps the
gold under your immediate control, and 2) it eliminates any risk
that storage at a bank carries: emergencies don't schedule themselves
bankers' hours; if a "bank holiday" occurs, access
to a safe deposit box will be lost when it's needed most; and
a court can order the seizure of its contents, or the IRS can
freeze your assets.
So that's it? A one-size-fits-all
storage solution?
No, not quite.
As your gold holdings grow,
or if you already own sizable weight or are considering a large
purchase, keeping all your golden eggs in one steel-and-combination-lock
basket may not be the right solution. As we encourage above,
having some gold in your immediate control assures that you can
see yourself and your family through any calamity. Now ask yourself:
can I keep a secret and not discuss it with anyone? Loose
lips can only lead to a late-night, ski-mask-clad, armed visitation.
How about the "security" company that installed the
safe - how tight are their lips?
Further, keeping large amounts
of gold in your possession exposes you to a latent threat: political
risk. Or in 'round the water cooler jargon, a "government
gold grab."
Think it won't happen in the
good ol' U.S. of A.? Consider the surge of government pushiness
over just the past six months. The U.S. government has usurped
the free market by subsidizing entire industries and embarking
on mega-dollar "stimulus" spending schemes, committing
trillions to its efforts - money it doesn't have and must borrow
or print. With tax receipts falling off and government debt exploding,
the government's hunt for revenue could lead to increasingly
desperate measures.
We've seen the 1933 black-and-white
version of this script, in which the plot develops into a presidential
diktat forcing delivery (confiscation) of gold owned by private
citizens to the government in exchange for compensation at the
price it finds most convenient. Will the temptation again prove
too great? We don't know. What we do know is that once the credits
roll, it's too late to start preparing.
So the final storage question
must be confronted: where should your gold be stored?
Sending Out an SOS: Swiss
Offshore Storage
One fundamental rule of investing
that hasn't changed is diversification, and the principle applies
to the locations you choose for storing gold bullion. Follow
the principle where it leads, and you find yourself thinking
about "internationalizing" your gold by holding some
of it in another country. But it should be the right country.
So exactly where is where?
The answer is the safest country
with the most secure facilities: Switzerland. Yes, still Switzerland.
For our money, er, gold, we
can't think of a country with a stronger legacy of respect for
private property. The country traces its formation back to 1291,
and the first Swiss Confederation was formed in 1353. Complete
independence came in 1648, when the Treaty of Westphalia recognized
the final separation of Switzerland from the Habsburg Empire.
Over the 361 years following the treaty, Switzerland has maintained
its neutrality and shunned foreign military entanglements. Now
that's shock and awe.
The country's domestic politics
are characterized by stable, non-intrusive coalition governments.
Such habitual civility, together with Switzerland's long tradition
of respect for individual privacy, has kept this small, largely
alpine country atop the list of the world's most trusted safe
havens.
The Franc: Swiss Hit or Swiss Miss
The global financial and economic
crisis has recently found its way into Eastern Europe, and the
troubles brewing there center on the Swiss franc. The apparently
dire situation led economist Arthur P. Schmidt to predict that
Eastern Europe's difficulties would pour over disastrously into
Switzerland. His predictions grabbed the headlines and a bit
of attention.
So, in keeping with the Casey,
"Intensely Curious, Focused on Facts," we dug behind
the headlines. Here's the big nothing we found.
Engaging in a carry-trade-like
gamble, individuals and businesses in Poland, Ukraine, Croatia,
Hungary, Latvia, and Belarus borrowed heavily in Swiss francs,
attracted by low interest rates. They crossed their fingers for
trouble-free repayment as, for a while, their currencies strengthened
against the franc. But that strength didn't last. The global
economic slowdown hit Eastern Europe hard, and their currencies
fell sharply against the Swiss franc, turning mortgages and other
franc-denominated debts into horrible burdens. Said fingers are
now doing a lot of pointing at who's to blame. The size of the
problem, according to Schmidt, is 230 billion Swiss francs (US$200
billion), and the difficulty of collecting on the loans supposedly
threatens Swiss banks with huge losses that could bankrupt the
country. Schmidt refers to Iceland's recent national bankruptcy
as a model.
We don't blame him for trying,
but the report incorrectly assumes that all the Swiss franc loans
to Eastern Europe originated at Swiss banks. They didn't. In
fact, it's Austria's banks that have the greatest exposure to
Eastern Europe. The day after the headlines, Credit Suisse released
a report citing the latest figures from the Swiss National Bank
that show Swiss bank loans to Eastern Europe totaled just SF33
billion (US$28.7B), or 6% of Switzerland's GDP. In contrast,
Iceland's banks had lent over 1,000% of GDP.
Our conclusion: we see no evidence
of an impending banking crisis or national bankruptcy in Switzerland.
Heidi is safe.
To read the full report and
learn all about Swiss specialist depositories, click
here.
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