2020, to say the least, has been an interesting year so far, unpredictable, and uncertain, with the very foundations of our “normal” realities shaken, as this virus and the massive government response to it, sweeps the globe. On top of that, ongoing trade wars with China, wildfires in January highlighting climate change risks, a potential war with Iran in February with a constant risk of that flaring up again, and with the single biggest event in a generation changing the political, economic and social landscape in the form of the Covid-19 Pandemic which has no foreseeable end in sight. Many questions remain unanswered such as, will a vaccine work, how long is one immune thereafter, will it mutate into something worse, will society gain herd immunity, will we be required to lock down again due to a rebound?
With no solid data and no firm knowledge of what the future holds, this fear and uncertainty is reflecting strongly in the gold and precious metals markets as one would and should expect.
Precious Metal Sales
Since early March, the phones here at Fort Kobbe have been ringing off the hook with people looking to buy precious metals to try secure their wealth in these unprecedented times and as a hedge against a very uncertain future.
On top of the precious metal sales, we have also taken on a number of new clients during the last 3 months, who have come to the realization that their physical assets stored in locations such as Hong Kong and Singapore are out of their control and unreachable in an emergency such as this, with many facilities around the world having closed because of Covid-19 restrictions including the US Mint and the Royal Canadian Mint.
Decoupling of Precious Metal Prices
The world has also witnessed an interesting phenomenon which is the complete decoupling from the LBMA spot quoted prices of metals compared with the actual physical purchasing price of the precious metals, due to the huge demand that has driven the premiums up.This is especially noticeable in silver where the spot (paper) price is hovering around the $15 per ounce mark but the actual (physical) prices of American Eagle coins is anywhere between $22 and $30 per ounce at the time of writing this article. Gold is quoted around $1700.00 but carries a physical premium of up to $300 per ounce.
In our opinion the difference between the paper market and the physical market reflects this discordance. With most commodities the physical drives the prices not the paper derivative prices, not so with precious metals. An excellent reason in times of uncertainty to hold physical precious metals outside of the banking system, in your control and safe from possible government confiscation.
An Insurance Dilemma
This divergence between the spot price of precious metals and the actual purchasing price lead to a number of discussions, here in our office, concerning insurance which shortly thereafter led to some very interesting discussions with our insurers in London.
Let me explain a little about this. Fort Kobbe has a number of different ways that you can store your precious metals insured. You are able to select insurance limits on our safe deposit boxes in the smaller vault but we also have fully insured storage in our UL3 Allocated and Segregated Vault, and this is where it becomes interesting.
In the very, very unlikely event of a loss occurring, the terms of our insurance policy are to make the client whole again, i.e. if you had one gold eagle you will have one gold eagle replaced and not a physical payout of cash.
The problem arises in the fact that the underwriters of our policy will pay out what the value of the precious metal was on the day of the loss and this is based on the LBMA spot price. With the current disconnect between spot price and the actual price, for example in the case of silver currently, the real replacement cost can be up to 100% greater than the actual spot price due to the high premiums.
Once we broached this problem with our brokers in London they informed us that we are the first client to have raised this issue with them and immediately realized that this now means that many vaults worldwide are possibly in a position where their insurance coverage is woefully inadequate considering this disconnect in pricing.
After working closely on various different ideas with our brokers in London along with the underwriters of our policy, Fort Kobbe is now one of the first, if not the first and only facility to be able to protect you, our clients, against this shortfall between the spot price and the real replacement price.
Fort Kobbe is now able to ensure that our clients with precious metals stored in our UL3 Vault are still 100% fully insured with our new “Top Up” insurance coverage. This additional “Top Up” insurance will make sure that even in the event of a substantial disconnect between the spot price and the real replacement price for the precious metals, you are 100% covered at all times for the full replacement value of your metals.
Despite the substantial additional cost of this “Top Up” insurance we have taken the executive decision that Fort Kobbe will absorb the cost and not pass it through to our clients in any manner what-so-ever as we understand that these are difficult times for everyone with many people dealing with major economic challenges.
Check With your current facility if they are covering you for the replacement price of your precious metals and if their insurance is adequate to deal with these price disconnects, if they cannot answer you or you are worried about it, get in touch with us blyto move your assets today!
As always we are here for you and your peace of mind.