Texas Bullion Depository is the Best Way to Protect Your Gold

Discussion of the Gold portion of the Permanent Portfolio

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FarmerD
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Texas Bullion Depository is the Best Way to Protect Your Gold

Post by FarmerD » Wed Sep 11, 2019 12:02 pm

I'm going to argue the Texas Bullion Depository is a far better option than any other geographical diversification idea.

The past few months I’ve done a deep dive on storing gold in the Texas Bullion Depository as well as the implications of creating a state gold-backed currency. Very few people understand that creating a golds-backed currency is a big deal. The depository has been discussed briefly here and there on this forum but there’s never been a full discussion on the merits of the Depository.

Main benefits
- Negligible counterparty risk. The depository is a state agency of the Texas Comptroller of Public Accounts. It is wholly owned and guaranteed by the State of Texas much like the Perth Mint is guarenteed by the government of Western Australia. Unlike financial institutions, Texas does not have shareholders or owners. As such, there is no incentive to steal or appropriate gold held in the depository. Texas has a balanced budget requirement and is financially stable. In fact Texas maintains a Rainy Day Fund currently valued at $12.5B.
- Deposits held within the Texas Bullion Depository are covered by an all-risk policy underwritten through the Lloyd’s of London Insurance Marketplace. The policy is reviewed and approved by the Depository Administrator and it covers 100% of all assets stored in Depository Account Holder accounts. Additionally, the policy maintains language that permits automatic increases in limits as new depository accounts are opened.
- By law the depository cannot loan out the gold or engage in any other financial activity other than storing gold or offering e-coommerce services.
- The depository is outside the banking system. Unlike a bank, the depository can't shut down or seize your safe deposit box.
- All account information submitted to the Texas Bullion Depository is encrypted in at least 256-bit encryption, data is encrypted in transit and at rest. Your personally identifiable information is never stored in an unencrypted manner.
- The Texas Bullion Depository maintains its own internal security and investigation team, which is supplemented by Texas Law Enforcement stationed on-site every day.
-You can either ship your gold directly to the depository or purchase from the US Gold Bureau and have them put it in storage for you. US Gold Bureau current vault facility serves as the initial location for the depository as the company works to build a new vault facility for the state of Texas. Depository officials have told me they plan to move to the new facility early in 2020. Lone Star Tangible Assets (LSTA) partners with the Comptroller’s office to build and operate the Texas Bullion Depository. LTSA owns US Gold Bureau.
- Section A2116.023 of the bill that created the depository states: “A purported confiscation, requisition, seizure, or other attempt to control the ownership … is void ab initio and of no force or effect.” Effectively, the state of Texas will protect any gold stored in the depository from the federal government.
- A debit card will be available soon. Once the Depository debit card comes online, Texas may well begin discussions with the IRS to lift capital gains taxes on gold held at the depository. Failing that, Texas may appeal directly to the Supreme Court where Texas would seem to be on solid contitutional grounds. It’s hard to deem gold as a “collectible” when Texas is clearly using gold as currency in day-to-day transactions as allowed by Article 10 of the Constitution. Texas has already taken the steps of creating a bullion depository, removing sales tax from precious metals, and is settting up a gold-backed currency. They have gone this far so why stop now?
- Any profits made will be handed to the general revenue fund of Texas, potentially benefiting taxpayers. This could be a sizable revenue generator for the state of Texas. This would be an extra incentive for Texas to challenge IRS taxation of gold. If Texas is successful in eliminating federal taxes on gold, one can easily envision billions of dollars flowing into Texas.
Last edited by FarmerD on Wed Sep 11, 2019 12:22 pm, edited 2 times in total.
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ochotona
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Re: Texas Bullion Depository is the Best Way to Protect Your Gold

Post by ochotona » Wed Sep 11, 2019 12:07 pm

Sounds wonderful, every time I've looked at it, it's too costly compared to an insured safe deposit box.
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Re: Texas Bullion Depository is the Best Way to Protect Your Gold

Post by FarmerD » Wed Sep 11, 2019 12:20 pm

ochotona wrote:
Wed Sep 11, 2019 12:07 pm
Sounds wonderful, every time I've looked at it, it's too costly compared to an insured safe deposit box.
The cost for the Depository is 0.5% annually while the safe deposit box insurance is about 0.2% annually. Keep in mind however, the entire reason Harry Browne recommended geographic diversification is because you want to protect your gold from the Feds. Safe deposit boxes provide no such protection but the depository does. 0.3% is a pretty small fee for that protection.
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Re: Texas Bullion Depository is the Best Way to Protect Your Gold

Post by FarmerD » Wed Sep 11, 2019 1:09 pm

It appears Texas is following the outline laid out by Dr Edwin Vieira, a constitutional law expert who has argued several cases before the Supreme Court. In the following videos (which are absolutely fascinating), Vieira describes his ideas on a state run gold-backed currency.

1. A state gold-backed currency is clearly constitutional and backed up by several Supreme Court precedents. As such the Feds really can’t interfere with it.
2. The Federal Government would seem to be on very shakey ground taxing capital gains on gold sales. If challenged by a state, they probably lose.
3. A state run gold backed currency would be a legal alternative to Federal Reserve system. If any kind of severe currency issues arise, people could switch over to the state run gold backed currency. This would act as a life boat for protection against any kind of currency collapse
4. In a dollar crisis, and you’d have a choice between a gold backed currency or a Federal Reserve note, the choice would be easy. Essentially good money would drive out the bad money, i.e. a sort of inverse to Gresham’s Law. The market would effectively force some type of gold standard on the Feds.

https://www.youtube.com/watch?v=cHKD4wSpE78
https://www.youtube.com/watch?v=1mI8Lek60_w&t=5s

The idea of treating gold as money is starting to spread rapidly in the wake of the 2008 economic crisis. Since 2011, Arizona, Idaho, Utah,Tennessee, Wyoming, Kansas, and Louisiana have all enacted legislation to remove state taxes on gold. Now that Texas has stepped up and built its own depository, Wyoming and Tennessee have taken steps to create depositories in their respective states.
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Re: Texas Bullion Depository is the Best Way to Protect Your Gold

Post by FarmerD » Wed Sep 11, 2019 1:38 pm

In a nutshell: States have constitutionally protected rights to create a gold backed currency. As such it’s extremely unlikely the Feds can seize the gold at the depository, force sale of gold at the depository to the Feds, and if challenged by Texas, it is likely they can’t enforce capital gains tax or enact any windfall profits tax on gold in the Texas Bullion Depository. These are constitutional protections you can’t get with any overseas gold holding or gold stored in a domestic bank safe deposit box.

Let’s compare the Texas Bullion Depository to an option favored by many here on this forum:

Texas Bullion Depository
FATCA reportable: no
FBAR reportable: no
capital gains tax: yes, but in the future probably not
subject to a windfall profits tax: yes, but in the future probably not
subject to gold ownership declared illegal by Feds: no
subject to having all foreign assets repatriated: no
gold readily accessible: yes
e-commerce using debit card: yes
annual cost: 0.5%

Perth Mint allocated
FATCA reportable: yes
FBAR reportable: yes
capital gains tax yes
subject to a windfall profits tax: yes
subject to gold ownership declared illegal by Feds: yes
subject to having all foreign assets repatriated: yes
gold readily accessible: no
e-commerce using debit card: no
annual cost: 1.0%

Obviously relying on courts to protect states rights is never a sure thing. Still, the depository would seem to be far better positioned to ward off the Feds better than any other type of geographic diversification.
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Re: Texas Bullion Depository is the Best Way to Protect Your Gold

Post by I Shrugged » Wed Sep 11, 2019 8:29 pm

I don’t think the IRS has ever said that allocated overseas gold is subject to those reporting laws. All I’ve seen is CYA advice offered by third parties.
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Re: Texas Bullion Depository is the Best Way to Protect Your Gold

Post by FarmerD » Wed Sep 11, 2019 9:25 pm

I Shrugged wrote:
Wed Sep 11, 2019 8:29 pm
I don’t think the IRS has ever said that allocated overseas gold is subject to those reporting laws. All I’ve seen is CYA advice offered by third parties.
You don't have to file FBAR or FATCA if you directly own the gold in a safe deposit box and nobody else can access it. However, Perth Mint can access your gold in any account you have with them (unallocated, allocated or certificate form) so its not directly held, therefore I think you would have to file FBAR and FATCA.

Even Safe deposit boxes may have to be reported:

If the safe deposit box can be accessed by a financial institution, the safe deposit holds precious metal certificates, or the financial institution provides insurance or other services for the contents within the safe deposit box, then the safe deposit box, and its contents, are more likely to be subject to U.S. income tax reporting and disclosure obligations.
https://www.forbes.com/sites/robertwood ... f042a52db8

That's my understanding anyway. It comes down to what is considered a "financial Institution" and what "directly held" means. You may be able to get away without reporting but I'd hate to be a test case on this issue.
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Re: Texas Bullion Depository is the Best Way to Protect Your Gold

Post by technovelist » Wed Sep 11, 2019 10:28 pm

I like the TBD and use it.
Would I like it to be cheaper? Sure, but I think they provide value for the price.
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Re: Texas Bullion Depository is the Best Way to Protect Your Gold

Post by boglerdude » Thu Sep 12, 2019 12:55 am

Thanks for this info & keep us updated. The real risk with gold is losing value, it's becoming less and less necessary as a tool of commerce. After that, the much smaller risk of gov confiscation.
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ochotona
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Re: Texas Bullion Depository is the Best Way to Protect Your Gold

Post by ochotona » Thu Sep 12, 2019 3:58 am

FarmerD, full.disclosure please.
FarmerD
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Re: Texas Bullion Depository is the Best Way to Protect Your Gold

Post by FarmerD » Thu Sep 12, 2019 6:11 am

ochotona wrote:
Thu Sep 12, 2019 3:58 am
FarmerD, full.disclosure please.
Not sure if you're serious but I have no financial interest in any company connected with the depository.

I had made several inquiries into storing gold in a safe deposit box in the Singapore Freeport but the more I researched the legal aspects of a state run gold-backed currency, the more I became convinced it offered way more protection that even an overseas safe deposit box. I opened an account with the depository a couple months ago.
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Re: Texas Bullion Depository is the Best Way to Protect Your Gold

Post by ochotona » Thu Sep 12, 2019 6:18 am

Thanks, your posts were sounding a bit promotional. Good arguments, though. I use a small bank way out in the Texas countryside, box insured, it's not an evil mega bank. I just don't see the point of paying more carry charges, if you compound them over the next thirty years it's a lot of money the gold holder pays. TBD fee 0.5% would be $100 per month for me at present gold prices and portfolio size. In future could be in multi-hundreds per month. Gold Roth IRA at GoldStar Trust co is 0.175% for $100k physical gold which you own, and ultimately tax free. I have one of these also. I don't distrust Perth Mint AAAU, though it's new.
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