How to chose a suitable country for gold storage
To store bullion in an offshore location provides a safeguard against gold confiscation, civil unrest or other problems affecting your home country. It can also help you to have access to assets in case you need to leave your home country for economic or political reasons.
Offshore storage is not without risks. In the worst case, the government of the country, where you have decided to store your bullion, confiscates gold, whereas your home country does not impair the right to private gold ownership.
Nobody can predict the future. For decades Hong Kong was considered to be a safe jurisdiction. The recent political turmoil has changed this and many investors have meanwhile moved part or all of their gold to other countries.
When selecting a foreign jurisdiction for the storage of bullion, we suggest to evaluate the following topics:
- Respect for free markets, private property and personal freedom
- Economic, political and social stability
- Independence from your home country
- Tax treatment of precious metal
- Gold market structure and liquidity
Respect for free markets, private property and personal freedom is a crucial requirement. A country that has a track record of strong government interference in the economy, excessive taxation, rampant corruption, an inefficient and bribable judicial system, and widespread violation of citizens’ privacy, is obviously a bad choice. This applies even more, if there a is strong xenophobic attitude within the government or the population as a whole.
Economic, political and social stability is a necessary condition. A country that suffers from record government debt, runs high budget and trade deficits, and has already sold most or all of its gold reserves, might see your metal as a welcome gift. Equally a nation, where no government lasts more than a year and riots or lootings are a regular occurrence, is not a safe haven for your assets.
Independence from your home county is a factor not to be underestimated. Many investors feel most comfortable storing their gold in a neighboring country with familiar culture and close political ties. For instance, many Americans think of Canada and Germans of Austria or Luxembourg. This is understandable, as those countries share similar customs, there are no language barriers and it is easy to visit them.
In our view political and economic independence from your home country is a lot more important than geographical proximity or common cultural roots. Close political relations even represent a no-go. Because of this, Canada is not a good choice for Americans, as the USA might impose its will on Canada if a crisis erupts. Equally Austria and Luxembourg are not a good choice for Germans, as both countries are members of the EU / Euro area and therefore subject to EU / ECB rules and regulations.
Tax treatments of precious metal vary. Some countries levy VAT or GST on transactions involving precious metal and also impose import/export duties. There might even be an earnings tax that is automatically deducted. It is important to check tax regulations before deciding on a storage location and keep up-to-date with planned changes.
Last but not least there is gold market structure and liquidity. As already explained above, a jurisdiction with renowned refineries, respected bullion dealers and vaults, as well as a well-established market for gold trading is preferrable. Otherwise you might find yourself unable to trade your bullion freely at a fair price when a crisis erupts.
When searching the web for the best country for gold storage, the following names regularly pop up (listed in alphabetical order): Australia, Austria, Canada, Cayman Islands, Germany, Hong Kong, Liechtenstein, New Zealand, Panama, Singapore, Switzerland, United Arab Emirates (UAE), UK, and the USA.
We would not store gold in a country with a history of gold confiscation and consequently delete the USA, UK and Australia from the list. The European Union goes from one crisis to the next and the European Central Bank will do “whatever it takes” so save the Euro. A severe banking crisis, high tax increases, capital controls and other property infringing measures are likely if not certain for the future. Even gold confiscation can’t be ruled out. For this reason, Austria and Germany are no safe haven locations. Liechtenstein is not the best choice either, as it is a member of the European Economic Area (EEA) and adheres to many EU directives.
Dubai in the UAE has a long history of gold trading and is nowadays the undisputed trading and storage center of the Middle East. The government is actively supporting the push to become a leading gold hub globally. However, the Gulf region has experienced several wars over the past decades and is currently experiencing increased political tensions. There are other countries that are a lot more appealing.
Hong Kong used to be a great jurisdiction for banking and gold storage. However, recent political developments have raised doubts, whether it is still a good location for Westerners. As a contrarian play it has a lot of appeal, especially if you count on the demise of the USA and Europe. But at this time, we would not recommend it to the ordinary Western investor.
Panama is an established offshore jurisdiction that gained notoriety through the famous Panama Papers. While the country continues to attract many companies and foundations, it ranks high in corruption, low in rule of law and there is a considerable risk from crime. It has experienced a vault bankruptcy and was at the center of a big gold scam. Political independence is limited, due to the importance of the Panama Canal, which was the reason for the USA to invaded the country in 1989. For ordinary people it is obviously not a good storage location, but it might attract sophisticated investors, who want to diversify their assets.
Canada is not only a wonderful country to visit, but also one of the leading gold mining nations in the world. The country boasts rule of law, low corruption and comparatively high economic freedom. On the other hand, Canada has to deal with high external debt, a current account deficit, excessive household debt and is tied to the dominating U.S. economy. In addition, the Canadian central bank has sold all of its gold. The latter is very disturbing, as nationalization of the gold mining industry and gold confiscation can’t be ruled out, if the current crisis worsens. This makes Canada not a very safe storage location, at least for the time being.
We are left with Singapore, Switzerland, New Zealand and the Cayman Islands, which we will analyze in more detail below.
To corroborate our assessment and give you a rough idea about the competitive position of each country, we refer to various indices: The Economic Freedom Index, the Corruption Perception Index , the Rule of Law Index, and Comparitech’s Privacy Score. In addition, we have used data from The Global Economy.
In general, we don’t like to use scores, as they can be manipulated easily. But we believe, that most indices and rankings provide at least a general overview about whether a country ranks among the top, somewhere in the middle or at the bottom in comparison with other countries.
The lion city has a strong reputation for respecting private property and free markets. The Economic Freedom Index ranks Singapore above all other countries, in the Corruption Perception Index it takes 4th place together with Switzerland and in the Rule of Law Index it achieves a respectable 12th position. However, regarding privacy it only rates as offering “some safeguards but weakened protection”.
Singapore’s economic position is solid. Its GDP per capita is high (purchase power parity adjusted even higher than that of Switzerland), the current account is well in positive territory and the country has become a leading banking center of the world. Some reports mention that Singapore has a high level of public debt. This is correct as far as liabilities (gross debt) is concerned. But when considering assets, it turns out that net debt is in fact positive. Singapore therefore enjoys a sovereign credit rating of AAA, which is on par with Australia, Switzerland, Germany, and slightly better than the USA. The political and social situation has been very stable since independence in 1965.
Singapore has been very careful not to align too closely with any of the super powers and maintains good relationships with the USA, China, and the EU. It is a member of the Association of Southeast Asian Nations (ASEAN), that tries to coordinate policies and create a single free-trade area, but is still far away from the integration reached within the EU. Considering its small size, the lion city boasts a comparatively large and especially well-equipped army, that should prove to be a hard nut to crack for any potential invader.
Since the government exempted investment-grade precious metal from GST in 2012, the gold sector has taken off. With strong political backing, the country has developed a world-class infrastructure and is now home to bullion dealers and vaults with excellent service level and very competitive rates. The leading players provide fully automated purchase, storage and sales solutions, that are far ahead of what is offered in most Western jurisdictions. The local gold market is very liquid and the Monetary Authority of Singapore holds a lot of gold in relation to its population of only 5.8 million people.
Due to its stable political environment, its strong regard for private property, and its geographical and political distance from the USA and the EU, Singapore is a great choice for gold storage. The presence of modern and affordable storage solutions make the city particularly attractive to ordinary investors.
The country has a century old tradition of respecting private property and free markets. The Economic Freedom Index ranks it as one of only six countries that are regarded as free, and the Corruption Perception Index puts it in fourth place. The legal system is intact and the country achieves a good privacy score.
Switzerland also offers very high stability. The confederation has one of the highest GDP per capita in the world, low government debt, a very strong current account position, and a well-established banking sector. With its decentralized political system and active participation of the population in key decisions through referenda, Switzerland’s democracy is fully functional and a lot more vivid than in most other countries around the world. Social tensions are very rare.
The nation has managed to remain neutral. It is not a member of the EU, the EWR, or NATO, even though cooperation exists. It has a small but well-equipped army that can deter potential aggression from abroad.
VAT is not levied on gold bullion transactions, whereas silver, platinum, and palladium are subject to VAT. Tax payment can be avoided, if the bullion is stored in bonded warehouses. Details need to be discussed with a bullion dealer or storage provider.
Gold market liquidity is high. Switzerland is a major global center for the trading and storing of bullion. It is also home to a number of famous refineries such as Argor-Heraeus, Metalor, Pamp, and Valcambi. The Swiss Central Bank maintains the highest per-capita gold reserve in the world.
The country offers excellent storage solutions for the super wealthy, but ordinary investors find it difficult to identify affordable products, as many middlemen ply the market. Annual storage fees well above 1% for investments below USD 250,000 are not unusual. In addition, the service level and technological standard is much lower than in Singapore, except for institutional investors and the super wealthy.
Strong regard for private property and high stability make Switzerland a top location for gold storage. However, to remain competitive for ordinary investors, local companies have to improve their service level and reduce pricing.
Being located at the end of the world (at least from a European and American perspective), New Zealand has attracted investment from many of the Super Rich, who consider the country as a safe haven in case of turmoil at home.
Since its independence from Britain, New Zealand has built a strong reputation for respecting private property and free markets. According to the Corruption Perception Index, it is the country with the least corruption in the world together with Denmark. The Economic Freedom Index ranks it in third place and the Rule of Law Index places it in 7th position. However, with regard to privacy it only offers “some safeguards but weakened protection”.
Over the past decade, New Zealand has enjoyed decent growth and government debt is very low for a Western country. The current account deficit has been hovering between -2% and -4% of GDP, but has partially been offset by foreign direct investments. The country has sufficient foreign currency reserves, even though the latter have declined significantly in recent months.
There is some gold mining, but the yellow metal has traditionally not played an important role and The Reserve Bank of New Zealand does not even own a single ounce of gold. Trading and storage options are limited and market liquidity is low. However, the main storage providers have made arrangements with foreign wholesalers and refineries that should work fine, as long as gold shipments to and from other countries are not restricted or prohibited. Investment grade gold and silver is exempted from VAT.
We would not recommend New Zealand as the first and only offshore jurisdiction for gold storage. But the country is certainly a very attractive option for further diversification abroad.
Many people will have trouble to find the Cayman Islands on a world map and others only know it as a tourist destination. But this British overseas territory located in the western Caribbean, is a famous offshore jurisdiction, where many multinationals have incorporated holdings and subsidiaries, while individuals use it to form companies, trusts and foundations.
According to its Ministry of Financial Services website, it is “one of the world’s leading providers of institutionally focused, specialized financial services and a preferred destination for the structuring and domiciling of sophisticated financial services products.” The country also offers a wide range of professional services such as banking, insurance, or vessel and aircraft registry.
In the past few decades Cayman has experienced a dramatic development. The islands have gone from a subsistence economy in the 1950s, to enjoying the highest standard of living in the Caribbean today. Since 1970 the population has increased more than 6 times to about 65,000 and nowadays people from over 100 different nationalities call the country their home.
Cayman operates under a robust legal system based on English common law. It offers a strong pro-business environment and the locals are fully aware, that their current wealth is based on money coming from abroad. There’s no income tax, no property tax, no inheritance tax, no capital gains tax, and also no VAT for the purchase and storage of bullion.
With only one gold storage provider of international repute, market liquidity is low. However, arrangements with foreign partners have so far ensured sufficient vault liquidity.
As the Cayman Islands Regiment has only 55 soldiers and there are just 400 police officers, protection against the potential invasion by a foreign army or troupe of mercenaries is limited. But this risk can be considered as low.
Like New Zealand, the country is in our opinion not the first choice for offshore storage, but offers a reasonably priced option for further diversification
Disclaimer: The above is for informational purposes only. It is not an offer or advice to buy or sell any products or services. LBB and its owner do not provide investment, tax, legal, or accounting advice. Neither the company nor the author is responsible, directly or indirectly, for any damage or loss caused or alleged to be caused by or in connection with the use of or reliance on any content, goods or services mentioned in this article.
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