Thursday, May 28, 2015

Rent vs Buy: An Adelaide "Cost Comparison" Revisted

One of the very early articles I wrote on this site compared the cost of buying a home with renting one in Adelaide (Rent vs Buy: An Australian "Cost Comparison"). Earlier that year I'd sold a property I owned in Adelaide (returned to renting), I put my money where my mouth is and at the time it made more sense from a financial (and personal) perspective to forgo the security of owning (or more accurately "paying off") my own home.

Almost 5 years later I am still renting the same property, the lower cost of which (less than the mortgage I had) has been an enabler to put away some extra savings and investment. In the meantime property prices have basically gone nowhere (fell around 8-10% over 2010 to 2012 and have since rebounded back to 2010 levels) and interest rates have dropped.

The comparison I did previously using figures in Adelaide, at the time most other Australian capitals were quite comparable (i.e. yields around 4-4.5% for houses), but today Sydney and Melbourne are in a league of their own. The figures I lay out below make owning look quite attractive, but that same argument probably doesn't hold true in Sydney and Melbourne where prices have gone gangbusters and yields are woeful.

I have revisited the figures from the original article and compared them with today.

Rent vs Buy - The Figures

Property: $500k House

Rent (2010): $25,000pa / 52 = $480pw
Rent (2015): $26,520pa / 52 = $510pw

(Residex shows yields have slightly improved for Adelaide over the past 5 years)

Buy (2010):
$500k + $24,000 (stamp duty and transfer fee#) x 7.25% = $37,990
1% of property value for maintenance and insurance = $5000
Council and water rates = $2000
Total = $44,990 / 52 = $865pw (interest only)

Buy (2015):
$500k + $25,000 (stamp duty and transfer fee#) x 4.15% (3 years fixed) = $21,787
1% of property value for maintenance and insurance = $5000
Council and water rates = $2200
Total = $28,987 / 52 = $557pw (interest only)

# Adelaide based figures, this would differ between states

As I pointed out last time, this still doesn't account for all costs of ownership (or for that matter renting), but you can see that there has been a squeeze in the gap between the two. In 2010 the cost difference was $385 per week, in 2015 that has narrowed to $47 per week, mainly as a result of falling interest rates and a small increase in rents. The above example shows a 6.25% jump in rents, in my personal situation I have seen a 13% rise in 5 years (which reflects the local market, different areas in Adelaide may have seen higher or lower). Over the last 5 years I have also seen my income rise which would make servicing the gap easier.

In Adelaide a $500,000 house would actually buy you something quite nice, a modern 3 bedroom house around 10km from the city, maybe even closer or a small house in the city if that is a preference. If you are prepared to look at modest homes you can buy something more dated, 15-20km out from the city, for around $300,000. Assuming a 10% (+ costs) deposit (leaving a $270,000 loan) and 3 year fixed interest rate of 4.15%, the principal and interest repayments would be around $300 per week. Rent for the same house might set you back $320-340 per week. Suddenly a home in Adelaide is looking quite obtainable, maybe even for a household on a single income.

Now I'm not saying Adelaide is cheap, it's still expensive on a global or historical comparison (if we look back at the property to income ratios of the mid 1990s), but it is definitely obtainable for those who've had the capacity to save a reasonable deposit (circa 10-20%).

There are still some risks to the Adelaide property market, as I outlined a couple of years ago (What's next for Adelaide property prices?) the economic conditions are not positive in the state, we already have one of the highest unemployment rates in the country and things may be set to get worse before they get better as the car manufacturing industry shutters. Further to this Adelaide property is at risk of being affected by recent changes to investor lending (that is likely to tighten further), falling wage growth and a crackdown on foreign investment (some of which was well described in a recent article by Callam Pickering). These factors are likely to continue weighing on Adelaide prices, but in my view with prices being the same level as they were 5 years ago, the risk of a substantial correction (i.e. 15%+ nominal) is unlikely barring a complete meltdown of our banking system or huge spike in interest rates (neither of which I consider to be likely).

FT describes an asset bubble like this:
When the prices of securities or other assets rise so sharply and at such a sustained rate that they exceed valuations justified by fundamentals, making a sudden collapse likely - at which point the bubble "bursts".
Those referring to all Australian cities as being in a bubble (I do agree Sydney and Melbourne potentially are) are either wrong or have come up with their own definition of the term. Perhaps they think it's likely we see a return to the historical price to income values we had in the mid 1990s (or earlier) and that we've been in a long lasting bubble since that time. I think that is an unlikely scenario (returning to ratios from 20+ years ago) given the political and financial system we have today.

On a personal note I recently started looking at property in Adelaide (to buy) for the first time in 5 years (looking at PPOR and/or investment) and I expect to purchase (perhaps more than once) in the next 12 to 24 months. Price growth may be slow to begin with and won't rule out some negative growth (what a term! e.g. falling prices) in the short term, but there are some reasonable yields out there now and the time to buy will be while sentiment remains poor.

And if GFC 2.0 comes knocking on Australia's door and smashes the price of all Australian property in half... well at least I'll still have my Gold ;)



Review of MetalDesk or click the banner below to try a demo / open an account.

Sunday, May 24, 2015

Taking Delivery: Bullion Capital's MetalDesk 2 Platform

Physical bullion has been a pretty solid focus of this site since it's inception almost 5 years ago. While I have in the past traded various "gold" and "silver" products (such as CFDs) which aren't backed by physical, my personal exposure to precious metals at the present time is only to personally stored physical (via safe deposit boxes) and allocated bullion products, the most recent of which has been Bullion Capital's MetalDesk

I reviewed the platform a few weeks ago (Review of Bullion Capital's MetalDesk 2 Platform) and promised a follow up on the delivery process (once I'd been through it personally): 
"Once I put through each order I received emailed invoices instantly confirming the trades and information about delivery timing (in my case just over 2 weeks) of the bullion to my chosen vault location (Adelaide). Delivery occurs in a trade cycle allowing Market Makers and Liquidity Providers the ability to amalgamate orders over a 2-week period and deposit larger quantities into the vaults at one time.
I intend on taking delivery of these coins through the Bullion Capital platform, so that I can further review the process for readers (so watch out for part 2). Delivery comes at a cost of an additional $30 or 1% (greater of), plus associated freight and logistics charges. Withdrawal requests can be submitted on the MetalDesk trading platform under the ‘Transfer’ section and are processed within two working days. The bullion can be delivered to the clients business address (client pays delivery charges) or client can pick up from the vault (not available in Australia, due to Armagaurd policies). Delivery fees vary based on the amount of metal, a small amount can be sent by insured post ($30-50), a large amount can be delivered by an Armaguard truck and bodyguards who can deliver to any CBD address for approximately $150."
So here is how it works...

With your bullion purchased through the platform, it will be available for delivery (to you, assuming you don't want it stored and insured through their network of vault locations) once it has been delivered to your vault of choice. On a two week trade cycle and with liquidity providers having a further week to meet their bullion delivery obligations (depositing bullion into the Bullion Capital Vault Network), it may take (up to) three weeks from the date of purchase before it's available.

Once your metal is available to take delivery you will be able to check the transfers screen (under bullion) and select your products for delivery:


After reviewing your items for withdrawal and confirming you wish to proceed the message shown on the site indicates Bullion Capital will be in contact to process your request.

Soon after requesting the withdrawal I was phoned by the team at Bullion Capital to organise the delivery. In my case I was told the best option was secure delivery by Armaguard, rather than through Australia Post (which was usually an option for smaller deliveries). This was due to the policy of the local Adelaide vault who request standard delivery fees along with cost of Australia Post in order to process, it was cheaper to just have the secure delivery occur directly (in some cases the vault provider may post the bullion at cost through Australia Post). So delivery came at a cost to me of $100 (+ the $30 minimum fee from Bullion Capital, which is 1% if withdrawing in excess of $3,000 worth of bullion).

The coins I received were a roll of 2012 1oz Silver Perth Mint Kookaburras and a 1986 1oz Gold Chinese Panda. Despite my confidence in it's legitimacy I had the Panda tested (by XRF, which can read metal content through the sealed plastic sleeve) and it was confirmed to be Gold, Au, the real stuff.


Despite the higher than expected delivery cost I still ended up well in front in this particular case (compared to buying from a bullion dealer) due to the age and higher value of the coins I was shipped. Breaking it down I paid (including all fees, in Australian Dollars):

20 x 2012 1oz Silver Perth Mint Kookaburras, $588 (+ $65, half delivery cost)
Total: $653

1 x 1986 1oz Gold Chinese Panda, $1599 (+ $65, half delivery cost)
Total: $1664

Grand Total: $2317

If I wanted to buy these coins from a dealer I would be looking at $35.60 per coin ($712/roll) for the 2012 Kookaburras (cheapest I could find), plus postage, totaling roughly $730. The 1986 Panda would be more difficult to source, but if I went with APMEX in the United States I'd be looking at $1720 (US$1347) for the coin plus postage, totaling at least $1750 (if I ignore the fact I'd probably be slugged exchange rate fees, a processing fee by customs and may need to fight for it's GST free status). Grand total of this would be $2480 ($163 more than through Bullion Capital).

As I pointed out in the previous review, you do not get to select the specifics (e.g. year) of the products you have delivered so if you get lucky as I did you might be better off having purchased and had bullion delivered through MetalDesk, but you shouldn't expect that to be the case. If I'd had a 2015 Panda and Kookaburras delivered I would have been worse off than having purchased through a competitive dealer (only slightly).

That said, taking delivery of the metal was only an exercise in seeing how this platform works. The real value is in the ease of buying, selling and storing allocated physical metal of different types. In normal circumstances you'd probably take delivery of a more substantial amount which would reduce delivery fees or leave it stored safely and insured with the option for delivery only in exceptional circumstances.

Bullion Capital's MetalDesk does fill a niche and what it does, it does well. If you are looking for allocated storage, with a various range of bar and coin types available, with pricing in Australian Dollars and/or US Dollars, where your purchased metal is stored, insured, in a choice of vaults around the country/globe and with the ability to take delivery of your metal in small or large lots, then I'd highly recommend you take their platform for a test run:



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I'm sharing links and opinions daily on Twitter (@BullionBaron).

Friday, May 8, 2015

Diversify Like A Central Bank - SDR Future Account

I was recently approached by SDR Future for a Q & A session that has been posted on their site. I have published it in full below for readers of this site.

SDR Future market themselves as the "first full SDR service for retail investors" and make it easy to gain exposure to a currency basket that mimics the allocation of the International Monetary Fund's (IMF) Special Drawing Right (SDR). Those who follow news in this space will be aware that the SDR currencies and allocations are under review and many speculate (there is good reason to think it will be the case) that the Chinese RMB (and possibly other currencies) will be included in the mix when it comes into effect on January 1, 2016. So SDR Future allows you a choice of various currency basket options (including "potential" SDR allocations):


They also have RMB Depeg Protection & Gold Backing strategies and can re-balance the basket on various schedules (e.g. weekly, monthly or quarterly).

I can see the benefits in being able to easily diversify your savings/reserves across a portfolio of currencies (that are managed on your behalf), but probably the biggest shortcoming (and this isn't specific to this particular product) is that like Gold and other monetary assets, those who make a "gain" against their local currency will (potentially) be liable to pay capital gains tax. We don't have competing currencies in Australia (despite the claims by RBA Governor Glenn Stevens that we do). Preserving global purchasing power in a non-speculative way would be made much easier with the right rules in place to accommodate it.

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Question and Answer with Bullion Baron

Jared:  Thanks for joining us Bullion Baron.  I’d like to ask you about the importance of gold as a base for any portfolio.  With the large accumulations of gold by China, India, and Russia, among other emerging economies, and the implicit recognition of the value of gold by central banks and global financial institutions such as the IMF, should investors not consider holding precious metals as a means of replicating the diversification and base valuation which is being utilized on a more macro level by the banks and institutions themselves?

BB: Thanks for having me. Having unencumbered physical Gold as part of the base for an investor’s portfolio is critical. Gold has unique properties and attributes (inherent and extrinsically applied by the prejudices of people) which make it an ideal asset of last resort in various types of crisis or panic. If everything comes crashing down around us, bank accounts get frozen or seized, stocks crashed, governments default on sovereign debt or worse, Gold stored safely will always have value and it has been common for investors to rush to buy it in event of crisis (driving up its value relative to other assets and fiat currencies).

Many western investors have grown complacent and dumped any Gold holdings, but you don't need to be a conspiracy nut or doom and gloomer to think it's worth holding a core position in the metal at all times. Many personal accounts of the GFC (2008-2009), including those who were right at the epicenter (such as Hank Paulson, then United States Secretary of the Treasury), describe a financial system which was days or even hours away from complete collapse. I don't think it's a coincidence that central banks turned from net sellers to net buyers in the years following that crisis. Just as many western central banks divested of Gold holdings in the 1990s citing diversification as the reason (as their reserves were Gold heavy), it’s probably the case that central banks realised they were light on Gold and appropriate diversification of their reserve assets would require obtaining more.

The level of Gold accumulation by emerging economies and recent comments out of China suggest that there might be more reasons they are accumulating Gold (other than as a safety net or diversification of reserve assets). For example, last week the China Gold Association said they expect Gold demand to rise in China and other countries (Far East and Central Asia) along the new Silk Road they are constructing, suggesting there is intent or an expectation that Gold may be used more often in trade.

Investors shouldn't ignore these trends.

Jared: Outside of holding physical gold, do you believe there are other effective methods for investors to indirectly pad their portfolios with the precious metal?  Could a gold ETF which is managed efficiently offer a similar portfolio backing as physical?

BB: A core position in personally controlled Gold (i.e. stored securely) is important, but electronically managed Gold products offer a convenient way of increasing exposure to the metal without the hassle of dealing with it all physically.

Two features that I see as vital before considering such a product is:

A) 100% physical backing with allocated metal and;

B) Investor has the ability to take delivery.

Though I was not previously familiar with The Gold Merk Trust (which you mention in one of the later questions) it appears on the surface to have these features, so would likely get a tick from me. In regards to products I've used with these features, one is PMGOLD, which is an exchange traded product (trades on the ASX), structured as a call option (with no expiry) which provides an investor the right to take delivery of physical Gold bullion from the Perth Mint. Another I recently discovered and reviewed on my site, MetalDesk from Bullion Capital, is itself an exchange for physical metal and allows you to trade, store (100% insured, vaulted in your choice of locations around the world) and have delivered (if you wish) physical precious metals.

The ability to buy and sell metal with the click of a button is both a blessing and curse, proceed with these options only if you have the self-control to avoid buying or selling in a panic. The inconvenience of having to retrieve physically stored metal in order to sell it can be a useful way to avoid irrational decisions made in haste.

Jared: When overvalued stocks begin to deleverage, where do you see the largest adjustments taking place?

BB: As I see it the stocks most prone to falling (or crashing) will be:

A) Those most overvalued (relative to profits today) and;

B) Those whose profits rely on income streams that will take a hit in the future. 

Of the former (A), those which look risky to me are some of the U.S. based technology companies, Facebook, Amazon, Twitter, LinkedIn, and Yahoo, many of these companies look overvalued and may struggle to achieve the business growth they’ve had in the past. The NASDAQ recently breached its (nominal) bubble peak from 15 years ago, it doesn't look parabolic at the moment (though growth has been strong) and could go further than some expect, but in many cases the fundamentals don't support current prices.

On the latter (B), we've already seen what happens to resource based companies in Australia when the price of the resources they are mining crashes and margins get squeezed, just look at the share price of Gold, coal and iron ore exploration or mining companies. Many of these companies have already seen a large adjustment downward; I think the FIRE (Finance, Insurance, and Real Estate) sectors (in Australia) might be next to take a large hit. The booming property market in Australia has provided our banks with record profits and share prices, but this will turn and we may already be seeing the start of it now.

Jared: Canada, Australia, and many other countries, including the United States, are experiencing disproportionate property valuations.  With the overvaluations in stocks and in property, do you feel investors have no choice but to seek out gold backed financial instruments?

BB: Investors should already have a position in Gold, regardless of overvaluation in other sectors, but the risks in other asset classes could provide justification for increased exposure (overweight Gold).

Looking at the ratio of Gold ounces it takes to buy a house in the United States, it actually fell to the lowest level since 1980 (around 100) in 2011, I noted this on my site when it happened and suggested it might be a good time for those invested in Gold to look at moving some capital into real estate. The ratio has almost doubled since as property in the United States has recovered somewhat and the price of Gold has fallen from US$1900 to circa $1200 at present. With the S&P/Case-Shiller 20-City Composite Home Price Index still well lower than the 2006 peak, I’m not sure that U.S. housing is substantially overvalued, but it seems likely Gold represents better value relative to property than it did in 2011, so is worth accumulating.

I am more familiar with Australia and it’s obvious we have a two-speed market. As a whole the Australian property market would be considered expensive, but we have Sydney & Melbourne home prices growing at blistering speeds while the rest of the capitals are seeing only moderate price growth, some of them are still around the same price level as 5 or more years ago (& so is Gold in Australian Dollars).

One thing worth noting is that when you buy an ounce of Gold, you are buying an asset which is indistinguishable from another ounce (or at least once melted). When you buy a property you are buying a unique asset which is different to every (or most) others in the market, you may be able to renovate and generate a higher return or subdivide or rent it out by room, it’s a much more versatile asset than Gold (and one owned for different reasons). Property is an asset class worth having exposure to.

Jared: Where do you see the SDRF and its gold backed strategy with The Gold Merk Trust fitting into the diversification of portfolios?

BB: Currency baskets (such as the SDR) are a great way of minimising risk from the price movements of any one currency. I'm sure many investors and even savers who've experienced significant price moves in the value of their local currency could appreciate the benefits of this, just look at the recent moves and volatility in the Russian Ruble, Swiss Franc and Australian Dollar. I could see an SDR Futures account being an especially valuable asset to an investor who either invests or travels across the world on a frequent basis and wants to preserve their global purchasing power without the need to put faith in a single currency, along with the convenience of having the allocation managed for them. If an investor in the SDRF strategy doesn't already have an allocation to Gold, then this would seem the opportune occasion to do so in conjunction with diversifying their currency position.

Jared:  Any final thoughts you’d like to communicate in regards to gold, national fiat currencies, and the SDR?

BB: Unlike some other commentators in the Gold space (some of whom think we'll see the end of fiat currencies and return to a classical Gold standard) it’s my opinion that all three of these monetary assets (Gold, fiat and SDR) will be around for a long time to come. I suspect how we (and central banks) use each of these assets may change dramatically at some point or gradually over the coming decade, but we can't know exactly what or how things will unfold and that is why diversification is important.

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I'm sharing links and opinions daily on Twitter (@BullionBaron).


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Tuesday, May 5, 2015

Martin Armstrong on Australia's Bank Deposit Tax

Yesterday I spotted an article by Martin Armstrong (Australia First to Introduce a Compulsory Tax on Money Itself) that I think is misleading (no surprise that Zero Hedge was quick to republish it).

Before delving into Armstrong's claims, let us take a look at what he is presumably talking about (I say presumably because his article rant is light on facts & details about the subject at hand).

From the AFR, a tax on bank deposits:
"The federal government is planning a tax on bank deposits at the May budget in a move that will raise about $500 million a year but which bankers warn could be passed on to customers.
Sources have told AFR Weekend that the government is set to proceed with the bank deposits insurance levy, first proposed by the former Labor government, to shore up revenue and to act as an alternative to forcing banks to hold extra capital as insurance against collapse."
What does that mean in practice?
"The money would be put in a Financial Stability Fund and be used to protect depositors against the highly unlikely event of a bank collapse. In the meantime, the fund would also be used to offset gross debt. If the Coalition adopts the same model as Labor and if banks pass the levy on to customers, it would mean a term deposit currently paying 2.6 per cent would pay 2.55 per cent."
So to correctly frame the situation we need to define what this tax is, is it a tax on money (as per the headline) or a tax on savings as Armstrong suggests in his article?
"The new compulsory control is provided in the 2015 Australian budget, so that everyone who has any savings must pay taxes on their savings. The measure is expected to serve as a global test balloon for Europe and North America, who will watch for the outcome in Australia. If there is no massive resistance of Australian savers, the rest of the world should expect this outright confiscation very rapidly."
In my opinion framing it as a tax on money or savings is implying (wrongly) that bank balances will be reduced in order to fund it. Really it's a tax on deposits and it's levied on the banks, not customer balances. Of course any cost to the bank will likely be passed on in the form of higher fees or lower interest rates, but very unlikely to touch balances (i.e. it's not outright confiscation).

The original Labor proposal was for the levy to apply on deposits under $250,000. Why that amount? Probably because that is the deposit size per customer, per Authorised Deposit-taking Institution (ADI), that the government guarantees. Is it fair that depositors insured by the government (taxpayers really) fund the cost of their own bailout should it be needed? I think so (but welcome opposing views in the comments below).

I wrote about Labor's proposal back in 2013 ($250k+ in an Australian bank? Beware the bail-in.):

"The banks are up in arms over who will foot the bill and there has been a media storm over the tiny fraction of a % that this insurance will cost (for example a bank would need only lower the interest rate paid on a deposit from 3.50% to 3.45% in order to recoup the cost). While the media, banks and politicians get into a scuffle over who will fund the minuscule cost of insuring funds under $250k, there seems to be no investigation or reporting by the media on what might happen to funds over the 'guarantee' limit in the case of a bank failure..."

I'm no fan of 'Too Big To Fail' banking institutions and don't pretend to have all the answers on the best way forward from the position we're in. Ideologically I think banks should be allowed to fail and individuals could organise their own insurance against such events, but would it be responsible of the government to just implement a change like this and pull all guarantees in one swoop?

Armstrong continues:
"Take your money and buy tangible assets, even gold, but you just cannot store it in a bank. Movable assets will be the key and buying equities in the USA may be the only real game in town to protect money."
Now anyone reading this blog for some time (or even if you are looking at it for the first time) should be able to deduct that I'm an advocate for Gold ownership, but that doesn't mean I think you should take out all your savings and buy Gold. Also I think keeping your Gold stored in a safe deposit box with a bank is probably just as safe as any private facility (in Australia) as I concluded in a recent article focusing on this very topic (Storing Gold & Silver: Safe Deposit Box In Australia):

"Bank SDB facilities get characterised as unsafe due to their connection to the banking system, but in my opinion there are some pros and some cons that result from this association and on the whole I don't see bank SDBs as less safe than their private counterparts."

Armstrong concludes on this note:
"The introduction of this tax on money in Australia led by Tony Abbott is the trial balloon for the global economy. The IMF’s Christine Lagarde has led the battle to impose French socialism/communism upon the entire world. I have warned that she is the most dangerous woman on the planet. Do not forget, it was the French elite who sold the idea of communism to Marx – not the other way around. Now the French elite have control of the IMF and they have persuaded all other global financial institutions to also require such a compulsory levy for several years because they see it as the only way to resolve the debt crisis – just confiscate the people’s money."
We've already identified that this isn't really a confiscation of people's money, but rather a levy on the banks to fund a Financial Stability Fund in order to support depositors in event of a bank failure. Is Australia really the first country to implement such a scheme as suggested by Armstrong in the paragraph above and even his article's title (Australia First to Introduce a Compulsory Tax on Money Itself)? No. Perhaps Armstrong should take a look at the history of the FDIC, which could be seen as an equivalent to this fund, guarantee & levy, it looks to me as if the US has had something similar implemented for almost 100 years or more (from: A Brief History of Deposit Insurance in the United States):
Assessments on participating banks. All of the insurance programs derived the bulk of their income from assessments. Both regular and special assessments were based on total deposits. The  assessments levied ranged from an amount equivalent to an average annual rate of about one-eighth of 1 percent in Kansas to about two-thirds of 1 percent in Texas.
Australia's 0.05% levy looks rather small in comparison. And from the FDIC's website:
"The FDIC receives no Congressional appropriations - it is funded by premiums that banks and thrift institutions pay for deposit insurance coverage and from earnings on investments in U.S. Treasury securities. The FDIC insures approximately $9 trillion of deposits in U.S. banks and thrifts - deposits in virtually every bank and thrift in the country."
Australia is hardly the first country to implement such a scheme and we won't be the last.

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I'm sharing links and opinions daily on Twitter (@BullionBaron).

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Sunday, May 3, 2015

Review of Bullion Capital's MetalDesk 2 Platform

Note: For those who just want a quick summary and are looking for my views in brief jump down to the section titled 'Conclusion'. Otherwise read from the top for my detailed review of this platform.

PART 2: Taking Delivery: Bullion Capital's MetalDesk 2 Platform
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Over the last 12 months I've written about various ways of owning precious metals. I wrote about holding it at home, holding it in unallocated account and holding it in a safe deposit box. One form of holding bullion in that I haven't discussed a lot is allocated accounts. Today I'm bringing to your attention a new platform I recently became aware of from Bullion Capital, which allows you to execute trades in (& store) allocated metal. They describe it this way:

"MetalDesk is Bullion Capital’s web-based trading platform, specifically designed for the trading and inventory management of physical precious metal."

The platform has some unique features that are particularly useful for Australian investors or those overseas wanting allocated metal stored here (though you have the flexibility to store your bullion in various global locations and in AUD or USD).

Bullion Capital's MetalDesk Vault & Delivery Locations
Before I continue I want to highlight that if you visit Bullion Capital from links on my site, then sign-up and trade or store metals through their MetalDesk platform, I receive a commission. You don't pay more, I just receive a cut of the advertised rates. That said I've never been one to "spruik" a product simply to get referrals, I have signed up and am using this platform with my own cash because I liked what I saw. With that disclosure out of the way...

Signing up for an account at the Bullion Capital site was painless. From the sign-up page >>here<< (you can also open a free demo account if you just want to see how it all works) you select whether you want to open the account as an individual, company or Self-Managed Super Fund (SMSF). I can't detail the process for the latter two, but setting up for an individual was easy. Enter a few key personal details, upload a scanned copy of my drivers license, select the broker I wanted (will explain in a little more detail below), hit submit and 40 minutes later I received an email detailing my account details and how to fund my new account.

There's a range of brokers you can choose from when signing up, located in various countries including Australia, New Zealand, Hong Kong, China, UK, US and even Cyprus. The fees (particularly for storage) do differ a little between them, which you can see when choosing from the drop-down menu. I chose esuperfund as they had the most competitive storage pricing for my intended use of the platform.

Storage Fees using esuperfund as my broker
On logging in for the first time you are presented with some terms and conditions and also prompted to choose whether you want your broker to be able to act as your agent with ability to see your account balances and trade on your behalf. I selected 'I Do Not Agree', but can understand there would be situations where this feature would be particularly useful if you were relying on your broker to make decision on your behalf or just so they can monitor your account.

I found the MetalDesk platform very slick looking, but to someone who hasn't used an online trading platform before it might appear quite busy. The dark colour scheme works exceptionally well and I found it much more easy on the eyes than some other trading platforms I've used which are usually white with bright red and green text to indicate positive and negative price action. Any price changes in the metals on MetalDesk are reflected on the screen instantly with brief flashes of a dull red or green to indicate the direction of movement.

MetalDesk Trade & Invest screen
As pictured (on the Trade & Invest screen), the far left has a menu that allows you to access other parts of the MetalDesk platform such as transfers, help resources, news, reports and settings. The various contracts available to trade are next across, if you select a contract type it will bring up the details in the middle of the screen and under the 'sorting' menu you are able to select the city for storage. Changing the settings on your account between Australia and the Global Market changes both the currency (AUD or USD) and the cities available to store your holdings. In Australia (in AUD) you can choose between Adelaide, Brisbane, Melbourne, Perth & Sydney, changing to the Global Market offers 11 locations for trading in USD.



The centre of the Trade & Invest screen shows a chart of the mid price (between the buy and sell spread) for the contract you've selected. Any open orders are below the chart along with your holdings at the bottom (which are expressed at spot price rather than adding any premiums for the various coins or bars you might hold). The right hand side of the Trade & Invest screen is a watch list where you can add contracts of interest with a click of a button.

The exchange is open 6pm Eastern Time (ET) Sunday (8am EST Monday) until to 5pm ET (7am EST Saturday) for five days a week (excluding U.S. market holidays), the platforms Liquidity Providers typically use price aggregators out of the North American market (such as the Comex), as a reference price and for hedging purposes, so between 7-8am each morning there is no price feed on MetalDesk to execute a trade as well as over the weekend.

After spending some time getting accustomed to the layout and having read the MetalDesk Quick Guide I felt comfortable enough to fund my account and transferred some cash across to buy some metal (Bullion Capital holds client funds in a segregated trust account). It took around 1 business day for the transferred funds to appear in my MetalDesk account following which I was ready to trade.

A range of physical gold, silver and platinum bars and coins can be traded on the platform. Once purchased the legal title to the metal is held by the client, it does not appear on the balance sheet of either Bullion Capital or the vault provider. That is the beauty of an allocated product, you own a specific piece of metal (coin, bar or portion of) rather than having a claim on metal that a third party owes you.

Spot Physical Precious Metal Contracts Available on MetalDesk
Looking through my options I almost went with an 1oz Gold Australian Kangaroo Coin for my first purchase, but decided on a 1oz Gold Chinese Panda Coin given they aren't too common in Australia from dealers and can command a premium. Through the MetalDesk portal I purchase the Panda coin for the same price as the Kangaroo and I took a look around at dealers prices at the same time, while I couldn't find many with Panda's listed for direct comparison, the MetalDesk platform was selling Kangaroo's for around the same premium (+/- $5-10) as many other competitive dealers prices (including the 1% trade fee).

The resources section of the Bullion Capital account holds a document detailing the contracts available, listing the minimum contract specifications for each product type you can purchase through the platform.

1oz Gold Chinese Panda Coin
The pooled contracts (1/2oz Gold & 1oz Silver) are the only products that can't be delivered on a 1 lot basis, but are still an allocated position, just that they're backed by a portion of a larger bar.

I also purchased a 20oz Silver Contract listed as Australian Kookaburra/Koala Coins.

20 x 1oz Silver Australian Kookaburra Coins
Unlike a dealer you aren't going to know exactly what you have locked away if you keep the coins and bars you order in the vault, you might have different years or designs, but you can be sure they meet the minimum specification.

Putting the order through the site was straight forward, but you aren't going to bump a key and accidentally put through an order. With a contract selected on the Trade & Invest screen, once you hit the BUY button to the top right a little order screen slides out enabling you to choose whether you want a market (execute the trade right now) or limit order (execute the trade if a particular price is met) and the number of contracts, then clicking Review Order will bring up a summary of the entire cost (including the 1% trade fee) before you confirm the order and execute the transaction.

Once I put through each order I received emailed invoices instantly confirming the trades and information about delivery timing (in my case just over 2 weeks) of the bullion to my chosen vault location (Adelaide). Delivery occurs in a trade cycle allowing Market Makers and Liquidity Providers the ability to amalgamate orders over a 2-week period and deposit larger quantities into the vaults at one time.

I intend on taking delivery of these coins through the Bullion Capital platform, so that I can further review the process for readers (so watch out for part 2, now live read it here). Delivery comes at a cost of an additional $30 or 1% (greater of), plus associated freight and logistics charges. Withdrawal requests can be submitted on the MetalDesk trading platform under the ‘Transfer’ section and are processed within two working days. The bullion can be delivered to the clients business address (client pays delivery charges) or client can pick up from the vault (not available in Australia, due to Armagaurd policies). Delivery fees vary based on the amount of metal, a small amount can be sent by insured post ($30-50), a large amount can be delivered by an Armaguard truck and bodyguards who can deliver to any CBD address for approximately $150.

Most choose not to take delivery and leave it in the insured vaults, where fees are calculated daily and billed monthly in arrears, so if a client withdrew bullion mid-month they would only be charged for the exact number of days it was stored. Storage fees are withdrawn from a client’s cash account balance and if that's not sufficient Bullion Capital's admin team calls the client to notify them a top up is required.

Whilst the platform itself was very easy to use and worked well most of the time, there were a few bugs that I found when using it. A couple of broken links in the help menu were quickly fixed up when I identified them (specific to the broker I signed up through) and there is a glitch I am finding in the watch list where the sorting defaults back to Sydney (rather than All Hubs or Adelaide), which I have raised with Bullion Capital.

The biggest let down was that the platform is not yet mobile ready. While I was able to view the site and login on my Samsung Galaxy S5, the Trade & Invest screen becomes unusable with various components overlapping each other. Logging in on an iPad produces a much better result with the trading section useable, but there was still some overlapping text in non-critical areas. A Bullion Capital representative advised me there are plans for mobile compatibility in the future, but for now (on computers) the MetalDesk platform is optimised for Google Chrome and works well across all browsers as long as they are current versions (personally I've used it successfully in Chrome, Internet Explorer and Firefox).

Conclusion


This platform has been getting some air time in various media circles that I am usually skeptical of for providing accurate information (such as the often hyperbolic Keiser Report and TF Metals Report), that said from what I've seen Tom Coughlin (Bullion Capital's CEO) has conducted interviews and answered questions rationally without getting too carried away even when pushed to do so (about the potential for this platform to rock the status quo in the paper markets or London). That said it's obvious that he's excited about the potential for this platform and I share his enthusiasm.

I've been impressed with almost everything I've seen from the platform and those running it, from the ease and speed of signup, the slick appearance of the trading platform and the quick response from the team at Bullion Capital with any questions I've had. The platform brings together unique features and functionality for trading allocated bullion that I haven't seen anywhere else.

Many Australian bullion dealers offer the ability to buy allocated metal through their sites, but the problem is their description of the product is usually a couple of sentences long (doesn't exactly instill confidence in the veracity of it) and their platforms are much more limited in scope.

That said, MetalDesk isn't for everyone, it does have it's limitations.

While priced competitively, if you are looking for immediate delivery of physical bullion you would find it cheaper and faster through a regular dealer.

But Bullion Capital's MetalDesk does fill a niche and what it does, it does well. If you are looking for allocated storage, with a various range of bar and coin types available, with pricing in Australian Dollars and/or US Dollars, where your purchased metal is stored, insured, in a choice of vaults around the country/globe and with the ability to take delivery of your metal in small or large lots, then I'd highly recommend you take their platform for a test run:


I wouldn't endorse using this platform as a complete replacement for owning and physically storing some other bullion safely elsewhere (I think diversifying your bullion holdings is a prudent strategy), but it does take the pain out of buying, storing and insuring your metal and could in particular be a useful platform for buying bullion in a SMSF.

As always, do your own due diligence, but I am confident having used the platform personally, that once I have received delivery of the Gold and Silver I purchased through MetalDesk, I will be back to use it in the future for purchase and storage of allocated bullion.

PART 2: Taking Delivery: Bullion Capital's MetalDesk 2 Platform

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