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Physical Risk of Gold

The first downside of gold investment is the physical risk. Buying gold bars and coins exposes the investor to the risk of loss and theft.

Costs are involved to mitigate this risk. The transport of gold needs to be insured, gold has to be kept in a personal safe at home, or, better, in the bank’s safety deposit box. Here, renting fees incur.

physical risks Physical Risk of Gold

A bank vault is probably the safest place for storing gold. However, investors should not believe that the bank will store the precious metal for generations. HSBC customers had to face this. The bank asked end of 2009 its small retail customers to remove their gold from the bank’s New York vault. This resulted in an armada of armored cars, bringing gold out of New York.

Another advantage of a bank safety deposit box is that the gold is not immediately available, as it can be only accessed during bank hours. Another issue is the insurance limit: In Germany, for example, bank safety deposit boxes are insured only until US$ 28,000. With the current gold price, this corresponds to 20 gold coins (each 1 ounce), or 567 gram. How secure are safety deposit boxes? Well, this depends on the paranoia of the investor. In the first quarter of 2010, thieves removed in a bank in Paris the contents of around 100 safety boxes. A couple of month later, in French Bank, nearly 200 safety boxes were cracked open and its contents stolen.

Property insurance usually either has a limited cover for loss of physical gold, or does not cover it at all. In both places, additional coverage needs to be purchased.

Besides safety boxes and personal safes at home, some people bury their gold on their property (midnight gardening). Will this reduce the risk of physical gold? In some ways yes, as it reduces the likelihoods of theft. However, those people should make damn sure to not forget to dig out the gold when they move, or before they die. Also, if the gold is immediately needed, it’s probably not possible to secretly access it.


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