Dollar''s slide on G-8 agenda but supportive intervention doubted

Section:

By James Turk, Editor
The Freemarket Gold & Money Report
Letter No. 325
May 26, 2003

2003 by The Freemarket Gold & Money Report

I continue to hear the horror stories. A subscriber tells me
that the bank where he stores his silver announced a three-fold
increase in fees. His bank therefore recommended that he sell
his silver "because it is expensive to store and has been a
poor investment." When he gave his bank notice that he
intended to move his silver to another location, the bank
backed down and said that his storage fee would not change.

I advised him to move the silver anyway. My reason? It
appeared to me that his bank was too eager to get him to
liquidate his silver.Maybe their trading desk is short
physical silver and is looking to get its hands on any
silver it can.If that is the case, who knows how safe his
silver really is?

Another subscriber tells me that his bank raised his
storage fees for silver to 2 percent per annum, apparently
thinking that additional expense burden would prod him
into selling. Again, his bank told him that silver has been
a poor investment and should therefore be sold.

My response was: Why has his bank suddenly taken this
great concern for the customer's well being after having
ignored him and his silver for years?

And the horror stories are not just for silver. I also have
been told things about gold that make one wonder about the
factors that are driving some banks to act as they are with
regard to metal placed with them for safekeeping.

The result of their actions has directly affected their
treatment of customers who store precious metals with
them. It appears that these banks are eyeing up the
metal stored in safekeeping for a purpose.And it is all
but certain that the banks taking these steps are not
doing it for their customers' best interests.

The sad fact is that most people do not completely
understand the intricacies of storing precious metals.
As a result, many people do not fully appreciate the
risks they are taking with their gold and silver, which
ironically has been bought by many people in order
to provide a risk-free way to hold some of their wealth.

Consequently, I have prepared this primer to provide
you with three storage basics to help you avoid
needless risks with your gold and silver.

1) Unallocated vs. allocated. These are the two most
basic methods of storage. When you store on an allocated
basis, you continue to own the gold. There is no transfer of
title. With allocated gold, you deliver gold bars to the vault
under a contractual agreement that the exact same bars
will be redelivered back to you upon request. But with
unallocated gold you become an unsecured creditor of the
bullion bank, and thus, in an unallocated account you
are at risk of the bullion bank's insolvency. So when you
store gold, it should be allocated.

2) Pool accounts. This term is used to mean that your
gold is commingled with the gold of other people, which
is easy to do because gold is a fungible commodity.There
are advantages to pooled gold, generally relating to
economies of scale and the resulting reduced fees that
are charged when the gold of many people is pooled. Pooled
gold can be allocated and unallocated. For example, in
GoldMoney all gold is allocated, and each user owns his
respective portion of the pool of allocated gold, which again
is the way that all gold should be stored. But in contrast
to the storage arrangements of GoldMoney, the pooled
gold of some firms is unallocated.Thus customers of these
firms own unallocated gold, which means that you are a
general creditor of the firm and at risk of the firm's
insolvency. Pool accounts are advantageous to use, and I
do recommend them -- but only when the pool holds allocated
gold. Avoid all other pool accounts.

3) "Gold" certificates. These certificates are common, and
are perhaps the most misunderstood type of storage
because they are not storage at all.The name is a
misnomer because you really don't own gold. All you own
is someone's promise to pay gold to you, which is the
basic nature of any "certificate." Let's say you have some
dollars and you go to your bank to make a deposit.As
evidence of the transaction, the bank gives you a
"certificate of deposit." You no longer own the money,
and you now become an unsecured general creditor
of the bank.This same principle describes how the
so-called "gold certificates" work.You don't really
own gold. Instead, you are an unsecured general creditor
of the bank, trading firm, or mint that issued you the
certificate.

In summary, everyone who owns gold has to distinguish
between paper and physical gold, which are very
different things.

I recommend that everyone own physical gold, and
there are two ways to accomplish this objective -- either
you take possession of the gold yourself or place your
gold in allocated storage. There are no other alternatives.

If you take possession of the gold, you must then be
willing to manage the responsibilities of holding physical
metal, and to take those required steps to make sure
that it is safely stored and insured.You also have to be
certain that you are purchasing gold from a reliable
dealer so that you are not receiving gold-plated bars
of lead or other base metal.

If you place your gold with others for storage, I
recommend that your gold be allocated. Do not place
your gold at risk in any way, and do not hold gold
certificates.

Gold certificates are not gold, despite what banks,
firms, or mints may tell you. These companies will
usually offer you all kinds of inducements to take
their certificates -- free "storage" being the most
common. But there is no such thing as a free lunch.
If a bank or mint is storing gold for you for free, it's
because you are a general creditor of that bank or
mint, which is now using your gold to generate
income.

Unallocated gold and certificates are not gold.It is
just someone's promise to pay you gold, and in a
crisis -- which is precisely when you need that gold --
it is likely that there will be a default on their payment
of gold to you.

The bottom line here is quite simple: Make sure your
gold is allocated.Do not take the risk of "gold
certificates."

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RECOMMENDED INTERNET SITES
FOR DAILY MONITORING OF GOLD
AND PRECIOUS METALS
NEWS AND ANALYSIS

Free sites:

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http://www.sharelynx.net

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http://www.financialsense.com

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http://www.goldismoney.info/index.html

http://www.depression2.tv

http://moneyfiles.org/

http://www.minersmanual.com/minernews.html

http://www.a1-guide-to-gold-investments.com/euro-vs-dollar.html

Subscription site:

http://www.lemetropolecafe.com/

Eagle Ranch discussion site:

http://os2eagle.net/checksum.htm

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COIN AND PRECIOUS METALS DEALERS
WHO HAVE SUPPORTED GATA
AND BEEN RECOMMENDED
BY OUR MEMBERS

Centennial Precious Metals
3033 East 1st Ave.
Suite 403
Denver, Colorado 80206
www.USAGold.com
Michael Kosares, Proprietor
US (800) 869-5115
Canada 1-800-294-9462
European Union 00-800-2760-2760
Australia 0011-800-2760-2760
cpm@usagold.com

Colorado Gold
222 South 5th St.
Montrose, Colorado 81401
www.ColoradoGold.com
Don Stott, Proprietor
1-888-786-8822
Gold@gwe.net

Investment Rarities Inc.
7850 Metro Parkwa
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Greg Westgaard, Sales Manager
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gwestgaard@investmentrarities.com

Lee Certified Coins
P.O. Box 1045
454 Daniel Webster Highway
Merrimack, New Hampshire 03054
www.certifiedcoins.com
Ed Lee, Proprietor
1-800-835-6000
leecoins@aol.com

Miles Franklin Ltd.
3015 Ottawa Ave. South
St. Louis Park, Minn. 55416
1-800-822-8080 / 952-929-1129
fax: 952-925-0143
http://www.milesfranklin.com
Contacts: David Schectman,
Andy Schectman, and Bob Sichel

Resource Consultants Inc.
6139 South Rural Road
Suite 103
Tempe, Arizona 85283-2929
Pat Gorman, Proprietor
1-800-494-4149, 480-820-5877
Metalguys@aol.com

Swiss America Trading Corp.
15018 North Tatum Blvd.
Phoenix, Arizona 85032
http://www.buycoin.com
Dr. Fred I. Goldstein, Senior Broker
1-800-BUY-COIN
figoldstein@buycoin.com

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