Gyroscopic Investing

Jim Rickards: At Least One Swiss Bank Has Started Refusing To Hand Over Physical Gold To Clients
http://www.businessinsider.com/jim-rick ... nk-2010-12

Jim Rickards of Omnis has an interesting anecdote about global gold mania.

He tells King World News of a client of a major Swiss bank who was refused access to his one ton of physical gold ($40M) and was forced to make threats to convince the bank otherwise:

“Correct, and through all of that eventually the individual did get his gold...it took lawyers, it took threats of publicity, it took a lot of pressure to do that, which my inference is that that gold was not there. The bank had to scramble, go out and find it somewhere before they could make good delivery.”?

To be safe, Rickards says you should take out your gold out of the banks before governments freeze physical holdings.

The risk isn't unfeasible. Gold is already treated as a paper asset, sold in futures, options and ETFs. All you need is a government order and "gold" becomes something that isn't to be backed by real gold. At which point you'd be wise to have real gold in a treasure chest at home.

Which bank? I don't put much value in anonymous anecdotes. Swiss banks hold tons of gold and silver. One bank I know about ran out of room in their vaults because they were holding so much for their customers. They had to come up with more space for it all. Swiss banking laws are much stricter than in the US about these types of things.

Yeah, it's not like Swiss banks have a history of stealing gold, or anything. 

Coffee wrote: Yeah, it's not like Swiss banks have a history of stealing gold, or anything.  

They don't. Nazis stole gold. Swiss bank privacy laws were first enacted in the early 1930s in response to Nazi spies. The spies would derive information on Jews that had accounts in Switzerland and put pressure on them to repatriate the assets back to Germany for plundering. It got so bad that agents actually kidnapped Jewish residents of Switzerland and brought them back to Germany to do this. It forced the Swiss govt. to make it a criminal offense to reveal financial information about bank account holders to protect them from this type of activity.

http://www.nytimes.com/2009/08/03/opini ... ssard.html

Coffee wrote: He tells King World News of a client of a major Swiss bank who was refused access to his one ton of physical gold ($40M) and was forced to make threats to convince the bank otherwise:

“Correct, and through all of that eventually the individual did get his gold...it took lawyers, it took threats of publicity, it took a lot of pressure to do that, which my inference is that that gold was not there. The bank had to scramble, go out and find it somewhere before they could make good delivery.”?

James Turk, founder of Goldmoney.com, tells a similar story about a Swiss bank (unnamed) and a customer who struggled for weeks to get delivery of his silver, which he had reportedly kept in allocated storage with the bank since the 1990s.  

You can listen to both Turk and Rickards on their podcasts on the Kingworldnews.com website.  For Rickards (gold) it's the Dec 7 podcast; for Turk (silver) it's the Dec 11 podcast.

craigr wrote:
They don't. Nazis stole gold. Swiss bank privacy laws were first enacted in the early 1930s in response to Nazi spies. The spies would derive information on Jews that had accounts in Switzerland and put pressure on them to repatriate the assets back to Germany for plundering. It got so bad that agents actually kidnapped Jewish residents of Switzerland and brought them back to Germany to do this. It forced the Swiss govt. to make it a criminal offense to reveal financial information about bank account holders to protect them from this type of activity.

http://www.nytimes.com/2009/08/03/opini ... ssard.html

Nazis stole gold, but Swiss banks laundered most of it for them so the Nazis could pay for raw materials on world markets.  Also, for decades following the end of WWII, the large Swiss banks refused to hand over the gold (and other financial assets) to owners who were survivors of Nazi death camps or their heirs.  Swiss bank secrecy laws may have been developed to protect Jews from Nazis, but as is often the case with secrecy, they were used negative ends, Catch-22-style.  [I'm not saying Swiss banking secrecy is wrong--just that certain bankers used the laws to their own ends.]

I think that was Coffee's point--that Swiss bankers, whatever their brilliance, have been exposed doing some evil stuff before. 

[I'm not saying there isn't some legitimate explanation for the delay in Rickards' and Turk's customers getting their gold and silver, that is, if these events did happen as they reported.]

They hid behind Swiss bank secrecy laws to facilitate their refusal to hand over the assets, even demanding non-existent and impossible documentation--like an actual death certificate on someone who had been killed in one of the camps--as an excuse to not release the wealth.  It all blew up finally in the 1990s into a major international scandal, with revelations and recriminations traded back and forth around the world:  By the time things got going, several other countries (Spain and Portugal come to mind) were implicated as additional money launderers, and even Argentina decided to investigate where the Nazis who fled there after the war got their funding.  Threats flew back and forth, individuals sued, cities and states around the world threatened to withdraw all funds from Swiss banks.  The Vatican became implicated, which added more conspiracy to the mix.  There was even a Swiss bank security guard who saved a trove of incriminating bank  documents from being shredded as part of a cover-up, then had to be offered asylum in the USA because as a result of his find he had received death threats and feared remaining in Switzerland.  In the end, the Swiss banks agreed to start a fund in the late 1990s valued at more than a billion dollars (as more evidence was brought forth, the amount increased from the $70 million they initially proposed) and worked with the Simon Wiesenthal Center and other charities around the world to establish a claims system for survivors and heirs to claim their assets.  They would not have agreed to do this if they had not realized, after much documented discovery, that some serious wrong had been committed by the bankers who came before them.

BTW, as often happens, the crisis that had been building up since the late 1940s reached a head after a simple observation/incident, detailed in PBS-Frontline's "Nazi Gold" program from the late 1990s:  A USA gold buyer would order  assays on gold bars his firm purchased, and he began noticing that gold from continental Europe, specifically Switzerland--and no other region--routinely yielded test results indicating that there were high levels of mercury and silver in the gold.  After one particular assay, he consulted with his friends and colleagues and they came to an alarming conclusion--the mercury was from dental crowns and fillings (gold and silver) extracted from Holocaust victims, crowns and fillings that had been mixed with other gold and melted together into gold bars.

smurff wrote:I think that was Coffee's point--that Swiss bankers, whatever their brilliance, have been exposed doing some evil stuff before.  

The Swiss traded with the Allies as well. They were surrounded by a powerful enemy and were trying to ride the fence to survive. Many lives were saved by not getting involved.

What do people expect a bank to do but demand documentation when supposed distant relatives show up demanding to empty a dormant account? Why should a bank take someone on their word that large sums of money were destined for them and not someone else?

I don't think we can armchair quarterback their decisions.

People also forget the amazing fact that the banks survived all of this to even have assets to return to the distant relations. I wonder how many relatives that had savings in other countries during WWII received their assets back?

I think the Swiss are unfairly maligned on this issue. Much of the reporting is pure hyperbole.

http://www.pbs.org/wgbh/pages/frontline ... brook.html

That is why the Nazis despised Switzerland. Joseph Goebbels called Switzerland "this stinking little state" where "sentiment has turned very much against us." Adolf Hitler decided that "all the rubbish of small nations still existing in Europe must be liquidated," even if it meant he would later "be attacked as the 'Butcher of the Swiss.'"

"Of all the neutrals Switzerland has the greatest right to distinction. She has been the sole international force linking the hideously-sundered nations and ourselves. What does it matter whether she has been able to give us the commercial advantages we desire or has given too many to the Germans, to keep herself alive? She has been a democratic State, standing for freedom in self defence among her mountains, and in thought, in spite of race, largely on our side."

Winston Churchill (1874 - 1965) British wartime Prime Minister

I think we can all agree that counterparty risk is always alive and well.  There are no 100% safe havens in the world--only degrees of perceived risk.  Perhaps the main takeaway on this issue is to not become overly confident in one country or region of the world.  Diversify as broadly as possible.

Btw, I don't know any intimate details of this story, but I have a tremendous amount of respect for Rickards and his credibility is at the top of the list. 

As for reports of Swiss banks refusing to hand over clients' gold or silver held for years in allocated storage:  I have been considering non-nefarious reasons this might have happened.  Of course the reports are somewhat anonymous, being given to us second or third hand--even though the reports I read were from reasonable sources.

In addition to reasons already given--off site storage, etc. it occurred to me that since Swiss bankers are under a bit more severe scrutiny now about high-value assets held in banks (under whatever scheme of ownership) they may now have to take time to verify that the PMs are not ill-gotten.  I note that in the aftermath of recent Middle East rebellions USA and Swiss banks were among the first to indicate that so-and-so's assets had been located and frozen. Imagine if Gaddafi had allocated storage in a Swiss bank that he had put gold bars into a mere 30 years ago.

Then there is the possibility that the account owner(s) might have been under scrutiny by the IRS and the  Swiss bank was aware of this, even if the account owner was not.

I'm not saying any of this is the case, just brainstorming possible reasons a Swiss bank might not turn over physical PMs right away if they actually have them in the vaults.

smurff wrote: I'm not saying any of this is the case, just brainstorming possible reasons a Swiss bank might not turn over physical PMs right away if they actually have them in the vaults.

The reason isn't really important.  It's a less appealing option if you can't get your gold promptly, regardless of the excuse given. 

I agree with CraigR.  I think the Swiss have been unfairly maligned on much of this issue.  They did make some mistakes after WWII, however, and their reputation has sufferred accordingly.

I dealt with the Swiss several times both as a small private bank customer for a short period and later in an official capacity on other banking matters.  It is a country where people are very honest and scrupulously obey the law.  Swiss banking "stories" are very easy to sensationalize and become irresistible targets for journalists and others with agendas.  Most of them seem to make little attempt to understand or explain current or past Swiss law and the complex historical context and the circumstances faced by the Swiss during and after WWII.  I have seen very few topics that result in more distorted headlines.

One Swiss official in the late 1990's did tell me (I'm paraphrasing slightly): "Where we Swiss both in the government and banking industry did fail badly was in not recognizing for a very long time the documentation problem after the war.  That should never have happened."

Swiss storage of gold through services such as Goldmoney or Bullionvault may offer something of value to some US investors, but the traditional individual Swiss bank or metals storage account favored by HB, for a host of reasons, has gone by the wayside as a viable option for most US investors.  It's too bad.                   

Hmm, on the one hand, I find it interesting to imagine how people would treat the Jews if they had been the bankers and not the depositor-victims. Already greatly maligned for all time, it seems, because of ancient but persistent canards, they would not have been helped much by an OP-ED in the New York Times by one of their own. Nor by the truth.

On other hand, and more on-topic, I am very glad to read this eye-opening piece linked by Craig. ("Leave Swiss Bankers Alone"). It runs contrary what little I've read in the past, and may help clear up something I've apparently been wrong about for decades. Looking forward to learning more about this.

Even more on topic: I'm holding all my bullion at home so far. This of course carries its own risks.

The topic of how to diversify gold holdings is interesting... part of me thinks that some in an ETF, some at home (some in scrap jewelry within that amount for confiscation purposes), and some in a safe-deposit box are about all the hedging you can do, and the ETF makes things a little easier to do the majority of the buying & selling until you feel that your solid gold holdings are too low for you to feel comfortable.

If we have to deal with the threat of force that the confiscation of gold represents, we're probably looking at threats to private property that no portfolio can defend against.  Would some solid silver also be a good hedge against confiscation?

moda0306 wrote: The topic of how to diversify gold holdings is interesting... part of me thinks that some in an ETF, some at home (some in scrap jewelry within that amount for confiscation purposes), and some in a safe-deposit box are about all the hedging you can do, and the ETF makes things a little easier to do the majority of the buying & selling until you feel that your solid gold holdings are too low for you to feel comfortable.

After all is said and done, I think most people will end up doing what you describe.

I think "most people" will not buy gold with the exception of the 2% thier financial advisor suggests in ETF form, but I know what you meant.

I forgot to mention:  The two reputable sources I heard on King World News--Jim Rickards and James Turk--BOTH indicated that they were not sure why this (failure to make timely deliver of allocated PMs) was happening and they BOTH indicated that the Swiss banking system had a great reputation, making these events even more puzzling to them.  (Both events happened in Autumn 2010; I'm not aware of anything more recent.)  From what I gathered, both of the customers who were inconvenienced eventually did have their metals delivered to them, although it took extra effort for them to get it.

There have been a couple of cases of "whistleblower" employees from at least two major Swiss banks selling stolen customer lists to government tax authorities in the USA, Germany, France, etc.  I considered the possibility that the customers involved in these two "failure to deliver PMs on time" situations might have had names similar to those on the lists.

(BTW,  At least one of the whistleblowers who thought he could cash in on a qui tam case went to prison anyway for his role in helping his American clients with tax evasion.  He was profiled last year on CBS's 60 Minutes.)

In the end, it did not matter to me, except as an exercise in playing reverse (or obverse) Devil's Advocate--something I like to do occasionally to help me understand what's going on--and what might happen--in my world. 

I agree with Adam1226 that whatever the reason is, the fact that one cannot have on-demand access to one's own property stored at a bank's vaults makes storing it there a less appealing option than it was years ago, when Harry Browne gave the advice. 

Even if they wanted to, Swiss banks are not likely to open allocated or unallocated PM accounts for new American customers.  (I don't know how they feel about new customers from EU countries that bought the stolen lists.)  I don't know what they will be doing in the future for current American customers.  (What they've lost in American customers is probably being taken up by customers from China, India, and other nations.) 

And I don't know whether other legendary locations for private banking--Austria, for example--are good substitutes. 

So this part of HB's PP advice--a portion of the PP gold stored in a Swiss bank-- is no longer possible for Americans.

I agree with everyone who's said it's a good idea to have PMs in a variety of physical and electronic forms, geographic locations, and storage venues.  You know, advice from your mother, like "Don't keep all your eggs in one basket."

The takeaway from Browne's advice is basically to have some assets invested in a way that makes it harder for a govt. to gain access. This doesn't mean tax evasion. It just means that you have options if something extraordinary were happening here. Options that could include dragging your feet while the financial crisis works out (hopefully saving some of your assets until after the worst blows over). Or it could mean simply having the option to leave and know you have some assets in another place to rebuild. Not a great thing to think about, but history is not a pleasant thing.

craigr wrote: The takeaway from Browne's advice is basically to have some assets invested in a way that makes it harder for a govt. to gain access. This doesn't mean tax evasion. It just means that you have options if something extraordinary were happening here. Options that could include dragging your feet while the financial crisis works out (hopefully saving some of your assets until after the worst blows over). Or it could mean simply having the option to leave and know you have some assets in another place to rebuild. Not a great thing to think about, but history is not a pleasant thing.

Thirty years ago, many Vietnamese refugees were relieved of their gold by communist officials as the price for exiting the country.  One could look at that as a shortcoming for an asset that didn't get to perform, or as evidence of its utility in purchasing freedom.  Maybe a little of both.