Gregor Gregersen, Founder
In 2009 the financial world nearly collapsed.
A bigger crisis will ensue as the underlying problems of too much debt, bad loans, leverage and bank-interdependence have only gotten worse.
So over the next 8 years we build the safest store of wealth, outside the banking system in a safe jurisdiciton, to weather and thrive in upcoming storm.
Along the way we are able to offer true innovations to our clients, including:
- bullion secured Peer to Peer Lending, whereby customers can securely lend to each other.
- the transfer-in program which ensures your bullion liquidity.
No, I haven’t always been a precious metals person. The role and importance of precious metals only hit me – like a rock, you might say – in 2008.
I spend much of my earlier career in finance, I even used to work with quants building custom derivatives “structured products” for large banks. By late 2008 ,I was a Senior Data Architect for Commerzbank, Germany’s second largest bank – when Lehman Brothers went bankrupt.
Few investors understand just how large and convoluted the derivatives exposure of our banks is. It’s estimated to be around a million billion dollars, or a quadrillion. The numbers are so large and the interactions so complex and opaque that nobody has anything close to an understanding of the reality of the risks that derivatives post to the global financial system.
Ultimately, these derivatives are just sophisticated bets. Banks combine derivatives from different counterparties and use them to optimize taxation, leverage returns and manage risk. The risk management is problematic, however, because it all rests on the assumption that a long position with counterparty X and an equivalent short position with Company Y will net out to zero risk.
[To explain this, using a very simplified example… let’s say you have two friends, Calvin and Hobbes. You borrow $5 from Calvin. And you lend $5 to Hobbes. You have only about $0.25 of your own money. Let’s say I’m an external investor, and I’m thinking of lending you money. How do I view your overall exposure? Some people would say that since your “net position” is zero (you’ve lent $5 and borrowed $5), you’re a very safe potential borrower. But the reality is, what if Hobbes doesn’t pay you back when you need the cash to return to Calvin? Or what if Calvin needs his money, or part of his money, sooner than he initially indicated? It turns out that your risk is a lot higher than zero. Of course it’s about a hundred times more complicated than this illustration.]
If a key counterparty defaults and the market starts moving, the whole thing can blow very quickly and make banks insolvent in a very short time, as the derivative bets are so massive.
In 2008, when Lehman Brothers went bankrupt and defaulted on their derivatives obligations, the whole system was about to collapse. It was only massive governmental bailouts and guarantees that prevented a meltdown that would have wiped out most people’s savings.
In my mind, the financial system now is like a house of cards, and I don’t want to be invested in it materially when the next crisis occurs. So I moved my assets into physical gold and silver, and stored it in a manner that removes counterparty risk and minimizes jurisdictional risk.
I started Silver Bullion Pte Ltd in April 2009 to see if other people, besides me, were interested in buying physical silver in Singapore (where I had moved to because of their competent government and policies). As the company grew, we built our own 600-ton capacity vault and eventually allowed for gold/silver collateralized peer-to-peer lending among customers.
I am not enamoured with precious metals per se. But if purchased and stored properly, they are one of the best ways to protect and increase your wealth when the next big crisis hits us.
Actually, distance is part of the attraction of storing in Singapore.
Historically, governments in financial distress or in times of war have often resorted to nationalizing or confiscating physical gold. Should a serious financial crisis occur, western countries – which are already heavily indebted and faced with bank bailouts – might again resort to nationalizing bullion stored under their jurisdiction.
The U.S., for example, nationalized gold in 1933, and made private gold ownership illegal, in order to fund Roosevelt’s “New Deal” spending program. By placing physical bullion in a rich, safe and neutral country with a strong history of asset protection – such as Singapore – you can protect yourself from potential nationalizations in your home country.
If such nationalizations occur then the funds in Singapore will be unaffected. On the other hand, should such nationalizations not occur, you are not any worse off. So in essence we provide a built-in wealth insurance and, as we are not a financial institution and handle only physical goods, we are not subject to financial reporting requirements such as FATCA.
We implement some of the highest level of transparency, insurance, bullion testing and control systems in the industry. We store all bullion on a segregated ownership basis, which is audited by multiple third parties, including LBMA approved inspectors and one of the big 4 accounting companies.
The bullion itself is covered is insured to a much greater degree as usual and includes coverages that normally are not provided such as mysterious disappearance, infidelity as well as terrorism.
Furthermore, unlike almost all other storage options, we do not outsource storage to third-party vaults. So with us, you get a one-stop storage solution without intermediaries. This allows us to physically handle and test the bullion we store.
That we are in Singapore means that we are not subject, directly or indirectly, to US or European law and are therefore an excellent storage option if these jurisdictions should impose capital controls or gold nationalizations at home. We truly fall only under Singapore jurisdiction.
As all bullion stored with us is in uniquely identified standardized parcels which are individually retrievable at short term notice. You also get a photo of each parcel you store with us. The Unique ID is important so each parcel can be legally owned by – not just owed to- the customer. The standardization is important so that the bullion can be tested, audited and traced efficiently and consistently over time.
Additionally, we provide reliable buy/sell liquidity so that anyone who wants to buy or sell can do so relatively quickly and easily at competitive rates and; through our peer-to-peer lending system, customers can securely and easily lend and borrow among each other at the interest rates they choose, using their stored bullion as collateral. Typical rates are around 3% to 4% per year. This system is truly unique to us and we were nominated for the best Fintech award by the Monetary Authority of Singapore.
If you are storing bullion at home or with another vault operator you can still take advantage of our services by transferring “transfer-in” the bullion to us, and after being tested and packaged you would be able to sell it or obtain P2P loans at around 3 to 4% pa.
Our customers are discerning and financially sophisticated. They often fly to Singapore to examine our operations and vault facility for themselves to ensure their stored gold and silver is indeed safe in a crisis and stored independently of the banking system. The majority of our customers are US and European Citizens, as well as Australians but with the introduction of the P2P system we are getting more local customers as well. We store around 16,000 parcels worth around 200 million USD and about 250 safe deposit boxes (which can hold up to 205 KG).
Actually I don’t spend much time on short-term gold/silver price movements. Our customers view their wealth stored with us as a long-term wealth insurance rather than a short term investment.
Over the past 100 years, gold has increased on average by about 4% per year in USD terms. I would expect physical gold to appreciate a lot more over the next 5 years because so many US dollars have been created since 2008 (there’s been a 400% increase in monetary base). Once the markets become fearful (and investors become more prudent), many more dollars will start chasing gold again.
I expect silver prices to increase more than gold, however. Silver is historically undervalued versus gold, and silver supplies have been shrinking for decades. Silver is trading at only 10% of its inflation adjusted high in 1979 [what is the comparable figure for gold?].
Once the next crisis comes, I would expect gold and silver prices to fall initially (as they did in 2008), as gold/silver paper positions in the futures exchanges will be sold to raise emergency cash to meet margin calls. However, just as in 2008, people will hold on to physical bullion, and sell only their paper positions [like most ETFs], which essentially are just IOU’s and have almost no physical backing. [Note to Kim – mention our ETF pieces here]
When the crisis worsens, physical bullion will be traded at a hefty premium over, non-backed, paper positions and eventually physical prices will start to surge. Although prices might drop initially, once a real crisis starts, it will be very difficult to buy physical silver/gold, as the markets will need time to find a new physical price. So once a crisis starts, it will be too late to buy gold or silver at currently low prices.