Buy gold - protect your savings. A review of BullionVault.com.
Like many other people we, the owners of Tech-Pro.net, have felt the consequences of the financial turmoil that has been brewing during 2008. We have seen the value of our pension fund and personal savings reduced due to the falling value of stock market based unit trusts. As UK residents we have also seen the value of the pound decline by 25% against the dollar and euro. With the stock market continuing to be a good way to lose money, banks proving to be less rock solid than we all thought and interest rates paid on bank deposits now at paltry low levels anyway, it is hard to know where to keep what is left of one's savings that will preserve their value against whatever financial calamity is next in store for us. Under the mattress was beginning to look not so stupid.
I didn't know how to buy gold, and thought that this was only an option for rich people able to afford entire gold bars. For many years it was. Small investors can, of course, buy coins or jewellery. But with those you always pay a premium for the collectible or craft element of the item you are purchasing, and there is a big difference between the buying and selling price at the coin dealers or jewellers.
However, I recently discovered a website that allows ordinary people like us with hundreds or thousands rather than millions to invest, to buy and sell gold at close to bullion market prices. That website is BullionVault.com, and I was so impressed with it - both as a web application, and for what it can do to help me safeguard the value of my savings - that I decided to write this review of it.
Disclaimer: Tech-Pro.net is not a financial website, and nothing you read here should be taken as financial advice. You should make your own mind up as to whether buying gold at BullionVault.com (or anywhere else) is really a good idea. I should also point out that the links to BullionVault.com on this site contain a referrer code that allows BullionVault to reward me for any accounts that are opened as a result of this article. We earn our living by recommending software and services on Tech-Pro.net and receiving referral commissions. However, we never recommend any product just because of the commission it may earn us. I am a very satisfied user of BullionVault.com and have personal gold holdings through the site. The purpose of this review is to help bring it to the attention of more people like myself, who don't normally read financial papers or visit financial websites and who may benefit from knowing of its existence and what it can do for them. The fact that BullionVault.com has a scheme for rewarding website owners who refer customers to them is just an extra benefit that is very welcome in the current economic climate!
Why buy gold?
Before looking at BullionVault.com it is worth thinking about why you might want to buy gold rather than just leave your money in the bank on deposit. Gold is not traditionally regarded as an investment, with good reason. It is a fairly useless commodity, used in microscopic quantities in the electronics industry, and to make coins and jewellery. When there is prosperity in the world, and investors are making money by investing in businesses and buying shares, they sell their gold and the price generally falls, as it did between 1990 and 2000.
Gold price chart by BullionVault.com - Click for live prices
People buy gold when they don't trust money to keep its value. When a lot of people want to buy gold, the laws of supply and demand come in to force, and the price rises. So it is possible to make money by buying gold during periods of financial uncertainty, as long as you don't leave it too late - the mistake most people make. Some people make money by actively trading, exploiting the hour-by-hour rises and falls of the gold price to buy low and sell later at a higher price. You can even do this through BullionVault.com if you want.
But people don't only invest in gold to profit from a rising price. Buying gold is also a way to preserve the value of your wealth when currencies are sliding. For a recent example you can look at what happened in Argentina in 2001, when people lost confidence in the banks and withdrew large sums of money to send abroad. Some people bought US dollars, which were then still regarded as a strong currency. Others bought gold. Those who managed to get their money out quickly enough before the government introduced tight controls, were able to preserve its value in real terms. Those who didn't found their savings became almost worthless.
When times get hard, governments often print money in an effort to spend their way out of a recession. It is happening right now, here in the UK, but because of the global recession most of the developed nations are doing it. America has been printing money since 1971, when President Richard Nixon broke the dollar's link with the price of gold. Much of this paper money has been used to buy consumer goods from China, which now holds more than $1,000 billion of gold reserves.
When governments print money, there is a risk of hyper-inflation. The current worst example of this is Zimbabwe, where even a loaf of bread costs several million (Zimbabwean) dollars. Some financial experts are advocating that a good dose of inflation is just what the sick global economy needs, in order to reduce the value of the huge loans that governments have taken out to the level where they can actually afford to repay them. If that happens, the losers will be ordinary people like you and I, if our money is kept on deposit in a bank at a paltry rate of interest. It is the possibility of such an event as this that makes me, personally, believe that buying gold is now the prudent option. Having a gold trading account that allows you quickly to switch money into gold means that if inflation gets a grip you'll be able to ride it out better than most people.
Why BullionVault.com?
The problem facing most ordinary people who want to buy gold is that you can't just go into your bank or phone up your stockbroker and buy it. Gold is not a commodity that is available to most people, except in the form of jewellery, coins such as Krugerrands, or small gold bars. This is certainly one way to buy gold, but it is rather an expensive way, because coins and bars are sold at a premium of up to 20% above the current official gold price (depending on size and quantity) and will be bought back at a similar premium below the official level.
The most cost effective way to invest in gold is to buy gold bullion on the professional market. However, that is neither practical nor convenient for most people. It isn't practical because so-called Good Delivery bars acceptable by professional traders are 400 Troy ounces (nearly 12.5Kg) each, and would cost you over $300,000 a time at today's prices. Then there are issues like delivery and insurance to think about. The professional market isn't convenient even for ordinary people with $300,000 to spare, because you can't buy or sell part of a bar. Even if you could afford a bar or two, you would have to sell an entire bar just to release some of your money when you needed it.
The term Good Delivery refers to gold bullion bars that have been cast by accredited refiners and kept in recognized bullion vaults. Because these bars are never allowed out of secure storage, there is no possibility for them to have been tampered with. Professional buyers will accept delivery of these bars without checking their purity. This helps reduce dealing costs. It's harder to prove that gold kept in private hands is really what the seller claims it is, which is why you never get such a good price for it.
BullionVault.com allows you to deal in Good Delivery professional grade gold bullion, but in fractions of a bar - amounts as small as one gram - at close to professional bullion market costs. The developers of the site have created a market for these small quantities. By automating every step of the process using some very clever software they have kept the dealing costs very low.
The actual gold bars owned by BullionVault clients are kept in vaults located in Zurich, London or New York. When you buy your gold you choose where you want it to be kept. Zurich is a popular location because many people worry that in a crisis, their government may make it illegal for private individuals to own gold, as the US Government did during the Great Depression. The Swiss have a good reputation for looking after people's money regardless of any claims an individual's home government may make on it.
BullionVault's computer system keeps track of how much of the gold you actually own. An important part of the way the system is structured is that you legally own the gold you have bought, so no-one else - e.g. creditors of BullionVault.com should the company ever go bust - has prior title to it. This is a significant safeguard compared to deposits in a bank, which are actually lent to the bank for it do with as it wishes (such as finance risky sub-prime mortgages, with the results we all now know about!) The gold you buy through BullionVault.com is yours, and yours alone, and it sits there in the vault doing nothing until you decide to sell it.
Since you never see your gold, how do you know it exists? This is a really good question, and one which is thoroughly addressed in the extensive help and FAQs on the BullionVault.com website. Since I do not wish to be accused of giving financial advice or pulling the wool over anyone's eyes my answer to that question is to go and see for yourself. But essentially, your protection is opennness. BullionVault.com goes as far as it can to be open and transparent, by using an accredited and trustworthy bullion vault operator (Via Mat) and by publishing the bar lists provided by Via Mat showing what gold they hold on behalf of BullionVault. The website also publishes its own lists showing who owns what. These lists use randomly allocated aliases for each account, so although they are publicly accessible only you can identify your own holding on the list.
How to buy gold
If you think that owning gold is a good thing for you to do, and that BullionVault.com looks like a good way to buy and sell it, then the next step is to try it for yourself and see how the system works. I must reiterate that before investing your own money you should do some research to decide for yourself if this is really a wise move. But trying out the system is part of that research, and it costs you nothing to start. If you enter the introductory code "WELCOME" on the sign-up page BullionVault.com gives you a free gram of gold and some free money (one dollar, one pound and one euro), so you can practise trading by selling the gram of gold and buying it back again. If you decide not to use the system after that, the account will eventually be closed and it won't have cost you a cent. Why wait? Click the banner below and you'll be trading in a couple of minutes.
Sign-up is quick and simple. I've had to fill out more boxes registering for a web forum! It's worth mentioning at this point that, if you decide to fund your account with money from your bank to buy gold, you can only ever withdraw money to that same bank account. This makes BullionVault.com useless for money launderers and an unrewarding target for hackers. You can even set up a "burglar alarm" which will send an SMS text message to your mobile whenever someone logs in to your account.
You will need to validate your account before you can take money out of it. The validation process is quick and simple if you have access to a scanner. Just scan your passport or other document containing a photo ID, such as a driving license, and scan a recent bank statement from the account you'll be using to fund your gold purchases. Then upload these two images using a form on the website. Within a couple of days your account will be validated.
Trading is also easy enough that even this financially-challenged writer managed it! The online help provided on the site really is very clear and comprehensive. There is a "getting started" walkthough that takes you through your first sale and purchase using the free gram of gold usually provided to start off every new account. The site provides a real-time chart showing the current gold price, so you can spot trends and decide what to buy or sell at. There is even a wizard to help you set up your purchases and sales.
What the walkthrough does not explain is how to beat the best buying price. That has a page of its own elsewhere in the help, but it's worth knowing before you start, as by selling at a higher price and buying at a lower one than the system sets by default, you'll be able to make more test transactions before your free money runs out. You may even make a small profit! In essence, the trick is to set the price you want to pay a bit lower than the current selling price, then place your order and wait patiently. If the price eventually dips to the level you set, the system will match your order with a seller, and you've made a purchase. If it doesn't, and you get tired of waiting, you can kill the order and try again specifying a higher buying price.
You can use the same trick with selling as well. Just set the price you want to get, place your offer and wait. When the price gets that high and someone is willing to buy your gold at that price, the system makes the sale for you. The trading commission is low (0.8% when you start) and you can buy and sell as little as one gram, so it costs very little to experiment. And it's worth experimenting to get a feel for how far you can push prices and still make purchases and sales.
Trading in gold
How you use your BullionVault.com account is really up to you. You might buy some gold for a rainy day - though if you do, it would be worth keeping an eye on the gold price as it can go down as well as up. You might just keep your account handy ready to buy gold if inflation starts or there is a run on your country's currency - though if you do that, be sure to buy some gold over and above the free gram you're given in order to keep the account open.
If you wanted, you could become an active trader, watching the price change minute by minute so you can buy when it's low and sell when it's high enough to pocket a profit. It's certainly feasible, though to do this successfully you'd need to hold a substantial amount so that BullionVault's commission charges reduce to a level that makes this activity profitable. The charges are quite low (0.8%) even for beginners and small traders, but decrease to 0.02% if your purchases over the last year exceed $600,000 in value.
As some of the readers of this article will be computer geeks it's worth mentioning that BullionVault appears to be happy for bots (automated traders) to use the system. There are some pages about this in the online help, though I didn't spot any API documentation or anything else of a technical nature. BullionVault.com aren't going to help you create bots because they don't want to be held liable for your losses if they provide the wrong information. They won't even tell you if they change something that could impact your bot's operation. But it's clear from my exploration of the site and reading the material provided that there are some really talented computer people behind the BullionVault.com site and they understand that other similarly talented people will want to do this.
Conclusion
I'm glad to have discovered BullionVault.com. I just wish I had known about it earlier. I think the ability to buy gold in modest amounts, or have the ability to buy it if financial events get worse than they already are, is a powerful tool that will enable the ordinary saver or investor to protect the value of what they have saved or earned in the not unlikely event that the global financial crisis deepens even further.
Nothing in this article should be taken as financial advice. Any decision you take is yours and yours alone. But I hope you found the article to be useful, or at least to have provided some food for thought as to how best to protect your personal prosperity.
BullionVault.com is a great site, even if you choose just to dabble in the gold market. Sign up now and start trading with your free gram of gold.