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Perth Mint Revisited – You Asked For It. You Got It.

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Read the Friday Afternoon Wrap-Up for 10/19/2012 and the Monday Morning Commentary for 10/22/2012

What differentiates Miles Franklin from all bullion dealers – WORLDWIDE – is our education platform.  And not elementary, text book stuff either.  Conversely, our team provides REAL WORLD “intelligence”; garnered from more than 100 years of combined financial market experience – including more than more than 60 in Precious Metals.

David Schectman is one of the industry’s elder statesmen; having traveled the world, speaking of PMs before 90% of current readers ever heard of gold and silver.  He and his son Andy built Miles Franklin from scratch in 1990; and over the ensuing 22 years, have NEVER had a registered client complaint.  Moreover, Bill Holter and I have nearly 50 cumulative years of Wall Street experience; publicly writing of the virtues of PMs – and dangers of other investments – for nearly a decade.

Our primary goal is to preserve client assets; which is why I re-branded us “MILES FRANKLIN, PROTECTION PROVIDER.”  Moreover, anyone that reads our blog – or speaks with us personally – knows we epitomize the “good, smart people” in our business; who not only understand our craft, but have good intentions.  Thus, anyone accusing us of “peddling product” against our clients’ best interest is either lying or compromised.

The reason for this staunch defense of our integrity is email received in response to Friday’s RANT, “PERTH TO MONTREAL” – principally from Australians, by the way.  In such messages, I was accused of denigrating the Perth Mint and being self-serving; when in fact, I’ve done NOTHING of the sort.

Included in the aforementioned messages was the below refutation posted on our blog from Bron Suchecki, the Perth Mint’s manager of Analysis and Strategy; whom amicably responded to follow-up questions throughout the weekend:

I am very disappointed that you have decided to denigrate the reputation of the Perth Mint when you yourself say you “do not have enough information to pass judgment”. A few points:

1. We refuted Jason’s claims at the time and subsequently our Chief Financial Officer and Treasurer visited Jason to explain our operations and take questions. While Jason is unlikely to endorse our services, I think you will now find he would not call our operations fraudulent.

2. Unlike most custodial services, Perth Mint Certificate clients holding Allocated are able to request to see their physical bars or coins at any time and do not need to rely on third party verifications, so they do have a personal connection to their metal.

3. Perth Mint Allocated and Unallocated clients can take comfort from the fact that we operate under multiple levels of audit: a) we perform full quarterly inventory stocktakes; b) our internal and external auditors are major accounting firms; and most importantly c) those auditors are not appointed by us but by the Auditor General of the State of Western Australia, which means we have no influence over them and they report to, and their audits are reviewed by, the Auditor General. Also note that the Auditor General is not controlled or report to the Government of the day, but to the State Parliament (ie bot the Government and the opposition parties), ensuring its independence.

I have no beef with Bron, who is simply doing his job.  However, let’s look at what I actually said, and analyze the content of his statements…

At no point did I “denigrate” the Perth Mint; as simply stating “I do not have enough information to pass judgment” is not denigration.  Conversely, I simply linked to Jason Hommel’s November 2008 article – Perth Mint Fraud Revealed – in which he accused the Perth Mint of fraud; and gave no opinions of Jason’s conclusion.

If I didn’t respect Jason immensely – via a personal relationship of more than six years – I certainly wouldn’t have reproduced it.  And by the way, I found several other articles warning investors of the Perth Mint Certificate Program – or PMCP – including a second Jason Hommel article, from September 2008…

Where’s the Abundance of Perth Mint Rounds?

…Eric deCarbonnel’s piece, from February 2009…

Warning About Perth Mint Gold Certificates

…and Bix Weir’s, from January 2011…

The Road to the Perth Mint

As for Bron’s statement that Hommel is now confident in the PMCP’s legitimacy, below is an article published in February 2010 – more than a year later – which states otherwise.  Speaking to Jason this weekend, I assure you he does not feel “disproven” – contrary to certain chat room claims.  However, he did note that as opposed to four years ago, when he heard dozens of client complaints about excessive Perth Mint delivery delays – going as far back as 2007 – today such complaints are significantly less…

Phoenix Show Report, Jason Hommel – February 2010

Remember, it is up to you – and you alone – to determine the risks, if any, of the PMCP; based on your own due diligence.  I am just here to lay out the facts; to make this process easier.  And remember, Jason wrote those articles – and heard the loudest PMCP customer complaints – in late 2008, during the WORST FINANCIAL CRISIS OF OUR LIFETIMES (as of yet); when the Perth and ALL other mints did in fact run out of silver.

Perth Mint suspended sales – Stockhouse, November 2008

As I understand it, only SEGREGATED accounts – as held by Miles Franklin’s Brink’s Canada storage program – have pallets with one’s name on it.  I have been to our Montreal vault – per last December’s RANT – “CANADIAN BULLION STORAGE – THE SOUND OF SMART” – and saw every pallet; with every client’s holdings; and every client’s name on it.

Thus, I KNOW the metal is there; so much so, I shipped essentially ALL my holdings to Montreal last week - per my October 11th RANT, “BREAKING NEWS”; as have both David Schectman and Andy Schectman.  In other words, we put our money where our mouth is.

As for Bron’s second response, he acknowledged that only “Allocated” account holders could request to visit the vault and see their gold and silver.  His explanation suggests some type of accountability for specific metal, but only “if they pick a numbered bar”; in which case, “they get a bar list.”  Frankly, I don’t know how to interpret this statement; but tellingly, roughly 50% of all PMCP clients are American.  Thus, very few ever visit; although it is possible to nominate third parties – likely, at significant cost – to make “independent audits.”

Moreover, the majority of PMCP clients hold either “unallocated” or “pool allocated” accounts – which, to his credit, Bron gave me the exact details; i.e., 15% of PMCP clients hold allocated accounts, 4% Pool Allocated (silver only), and 81% unallocated.

“Allocated” accounts are far more costly than “unallocated” and “pool allocated” accounts; and to convert unallocated and pool allocated accounts to allocated status can be quite expensive.  Thus – as I expected – “allocated” counts represent the vast minority of PMCP holdings.  In other words, very few clients have the ability to view their holdings.

PMCP offers clients the following comprehensive services:

  • Conversion of Unallocated and Pool Allocated metal to Allocated Coins or Bullion upon payment of the current fabrication charges.

-perthmint.com.au

Below, I have linked to the PMCP’s fabrication and storage fee schedule.  It is up to you to determine if 5% of bullion value ($86 at current prices) for a single one ounce gold coin is expensive – or $10 for a single one ounce silver coin; but I think you know I’m being facetious.

PMDP Fee and Product Information Schedule

Moreover, storage fees for Allocated and Pool Allocated gold and silver range from 0.95% to 1.90% of bullion value, compared to the “industry standard” of roughly 0.75% of bullion value; and oh yes, Miles Franklin’s fixed cost of $1.00/oz/month for gold – subject to volume discounts – and $0.035/oz/month for silver:

Furthermore, the all-important word – SEGREGATED – appears NOWHERE on the firm’s website.  If you think this does not make a difference, read the definitions below…

Allocate – To set apart for a special purpose; designate: allocate a room to be used for storage

Segregate – To separate or isolate from others or from a main body or group

…and Bron’s response to my question on this topic…

Our allocated is physically segregated from our operational metal. However, we do not always segregate between clients within the depository division’s vault. We are an operating mint, not a safety deposit box business.

Then, tell me if you would you rather have an “allocated,” or SEGREGATED account?

Furthermore, to convert an “unallocated” or “pooled allocated” account to “allocated” – or an “allocated” account to actual bullion – one must pay the aforementioned fabrication charges; a process that can be as time-consuming as it is expensive.

Regarding the former, the fee schedule linked to above speaks for itself.  As for the latter, Bron claims such delays often relate to clients taking time to decide on which product to have fabricated – which I cannot validate, but makes some sense; particularly when considering the Australia/U.S. time zone delay.

That said, we have anecdotally heard of long-wait times in the PMCP fabrication process; and even subpar products, eventually re-sold at or below spot price.  We were not involved first hand, so it is difficult to judge if these complaints were justified.  Moreover, as a general rule, bars trade at lower premiums than rounds; and the larger the denomination, the lower the premium.

Back to the original question, there is ZERO metal in your name in the “unallocated” and “pooled allocated” accounts; which, as noted above, cumulatively represent 81% of all PMCP accounts.  According to Bron, these are the official “definitions” of each account type…

Allocated accounts hold specific metal assigned to individual clients, which is not on our balance sheet.

Pool Allocated is much like GoldMoney, where we have a pile of 1000 oz. silver bars set aside against a lot of individual client account balances. The physical is on our balance sheet, backing the ounces owed to clients.

Unallocated is where we have a liability to clients which is backed by metal we use in our operations.  It is non-fractional, and we do not lend any of that metal to third parties.

The PMCP’s “allocated” segment – representing just 15% of PMCP accounts – is the closest to having your own stored metal.  However, regarding the other account types, nothing could be closer to the truth.  And let’s not play semantics; the PMCP’s “allocated” accounts DO NOT offer the iron-clad segregation of Miles Franklin’s Brink’s Canada storage program.

Bron likened the “Pool Allocated” segment to Goldmoney – operated by James Turk.  As you can see, the silver it holds (pool unallocated is only available with silver) is also a Perth Mint asset; thus, potentially holding a dual claim.  Moreover, 1,000 ounce silver bars are the industry’s least valuable assets; and the aforementioned “fabrication charges” to melt them down, recast them into smaller denominations, and convert your account to Allocated may be cost prohibitive.

As for the “Unallocated” segment, it is discomfiting to know 81% of the program’s accounts are held in this form; particularly as 50% of ALL clients are American, living 9,000-11,000 miles away.  And more so, client claims are held as a liability on the Perth Mint’s balance sheet; backed solely by an asset of indeterminate amount, based on constantly changing industry conditions.

In late 2008, it is FACT that the ENTIRE INDUSTRY ran out of silver; and to a lesser extent, in Spring 2011.  Thus, it is unlikely there was any silver behind PMCP certificates during those times of crisis.  In other words, during times of extreme duress; which, as you know, I expect to increase exponentially in the coming years, the PMCP program faced the EXACT same problem as the entire Western banking system – significant COUNTERPARTY RISK.

Bron dispelled the notion that the Perth Mint lends against such holdings, although the aforementioned detractors’ research suggests otherwise.  There is no way of knowing the truth – other than to trust the independent audits – but that is a conclusion you must come to.

Finally, another cautionary note, per language on the home page of PMCP’s website…

The Perth Mint Certificate Program (PMCP) – Overview

PMCP offers clients the following comprehensive services:

  • Precious metal storage on an Allocated, Pool Allocated or Unallocated basis. The availability of the storage type is at the sole discretion of the Mint. 

Bron has been with the Perth Mint since 1994, but when confronted about this provocative - and highly visible – disclaimer, was not aware of it.  Later, he got back to me with the following explanation:

OK, that is not very well worded. The key is ‘availability.’  What we are trying to say is not all storage types may be available to choose from.  We shut new inflows into unallocated silver a year or so ago, and only offer silver in allocated and pool allocated.   We will shut inflows into unallocated gold at some point in the future, as there is only so much metal we need for our operations.

This seems to be a straightforward answer, but the disclaimer does not engender confidence.  Shifting “availability” – so much so, that such a blanket disclaimer was instituted – suggests sharply varying supply and demand, causing the mint to at times shut down certain options.  More importantly, how might “availability” be affected by MAJOR supply shortages, such as the ones I anticipate?  Given the dangerously worded disclaimer, is it possible the mint will one day mandate “allocated” accounts are no longer “allocated?”

Again, there is no way of knowing EXACTLY what future supply and demand will look like (although you know my view), as well as the legal ramifications of such a disclaimer.  In my view, anticipating anything other than the worst-case scenario during times of distress – particularly from a government-owned entity – would be naïve.  But again, it is up to you to decide.

I do not “take comfort” from the Perth Mint’s internal and external auditors being “major accounting firms;” no more so, than when a firm has a “Triple-A” rating from “major ratings agencies” like Standard & Poor’s and Moody’s.

Conversely, what allows me to sleep at night is that Miles Franklin officers – Andy Schectman and Joel Kravitz, to be specific – personally audit our Montreal vault each quarter.  Given the Brink’s program is operated by Miles Franklin, Andy and David Schectman are highly incentivized – putting it mildly – to make sure it is audited properly.  Not to mention, the significant amounts of their personal wealth stored there.

Like the “TBTF” banks, behemoth accounting firms have attrited away their competition, creating an EXTREMELY DANGEROUS oligopoly.  What was once the “Big Eight” auditors – and when I graduated college, the “Big Six”; is now the “Big Four;” utilized by essentially ALL major Western corporations.

To wit, millions were once told to “take comfort” that Arthur Anderson was auditing their holdings; until it was disbanded in 2002 following criminal convictions due to its “work” with Enron and Worldcom.  And for those still brainwashed into believing in the “integrity” and “competency” of the Big Four, here’s a list of some of their clients, and former clients…

Nor am I comforted by Bron’s explanation that such auditors are appointed by the government of Western Australia, which owns the Perth Mint.  Last I looked, it was GOVERNMENTS that caused the FINANCIAL ARMAGEDDON we face today; care of unfettered MONEY PRINTING…

Australian investors facing a currency war

…and LIES; yes, even in Australia…

RBA scandal tests governance in Australia – August 23, 2012

Better yet, holders of Perth Mint “certificates” are asked to assume a GOVERNMENT ENTITY will not decide one day that holdings within its walls – i.e., the Perth Mint – will not best be served in their own hands; particularly, a government that sold NEARLY ALL its gold reserves in 1997, at roughly $340/oz.  By the way, per the RBA’s head governor at the time – Ian MacFarlane – such sales were conducted because gold was considered a “poor investment” …

The Australian Gold Sales and the Aftermath

In full disclosure, the Perth Mint is not owned by the Federal Australian government, but the State government of Western Australia, as Bron noted below:

One other very important thing – we are owned by a State Government. We are not under the control of our Federal Government or their central bank. West Australians are fiercely parochial, and don’t take kindly to interference by the Feds.  We run our own show, and aren’t involved in their money games.

The explanation sounds good on paper; but in reality, it would be naïve to believe the Federal government wouldn’t assert “eminent domain” in a time of crisis.  Or, for that matter, that a powerful state government wouldn’t make its own draconian decrees.  Moreover, any scenario in which the State and Federal governments were warring over the Perth Mint would likely be one in its American clients – 50% of the total, 81% of which hold unallocated accounts – would not feel comfortable about their “ownership” of PHYSICAL metal.

Before you pass judgment on my intentions, please re-read my original RANT; as you will see at no time did I accuse the Perth Mint Certificate Program of ANYTHING.  All I said was that, in many ways, it resembles the type of “PAPER PM Investments” that should be highly scrutinized.

I suspect much of the criticism I received was from current PMCP holders; with no interest in re-thinking their decisions or taking the “irritating” and/or costly steps of cashing out (tax ramifications); taking delivery (costs and logistics); or otherwise transferring their holdings.  Heck, the reason I wrote ““PERTH TO MONTREAL” in the first place was simply to alert PMCP holders they could convert such certificates to metal, with ZERO tax consequences.

Let’s face it; MOST PMCP holders purchased their certificates BEFORE 2008’s Global Meltdown I; a far simpler time, when such risks were not even considered.  However, this is 2012, following four years of financial COLLAPSE and systemic custodial FRAUDS; let alone, when the threat of FINANCIAL CATASTROPHE increases each day.

If you feel comfortable holding certificates of ownership of PMs that may or may not exist; on an isolated continent thousands of miles away; safeguarded by a government entity – let alone, one that sold its own gold long ago; via a program that – simply by viewing its website – has numerous potential “loopholes,” that is your prerogative.  I’ve simply laid out the FACTS for you to analyze; and told you what David Schectman, Andy Schectman, and myself have done personally.

I’m not here for fun; and trust me, I’d rather be doing something else this weekend; during which I spent more than ten hours on this RANT; including speaking with Jason Hommel Saturday at 10:00 PM, waking Sunday at 4:30 AM, and proofreading at the gym Monday at 5:00 AM.  However, I take my job SERIOUSLY; that is, to tell the TRUTH, and PROTECT you!

And by the way, the positive emails about Friday’s RANT now nearly equal the negative; as apparently, many are leery of the PMCP.  Some were answered on the Miles Franklin Blog, and others personally.  However, given the length of today’s RANT – and mandate to limit the length of my RANTS – they are not posted in today’s Mailbox.  Sorry!

PROTECT YOURSELF, and do it NOW!

Call Miles Franklin at 800-822-8080, and talk to one of our brokers.  Through industry-leading customer service and competitive pricing, we aim to EARN your business.

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