Brian sent me this piece of news. Eric Sprott is looking to open a bank based on Gold in the vaults. The intention is to make Gold as insurance more accessible to Mom and Pop. You will be able to write a check based on what you have in physical in the bank. It's an interesting idea however he will not allow loans or fractional based lending on deposits. So really not much different than holding, I dunno, say PSLV for example.
I am not sure if Eric is serious about this or is it just a publicity stunt. Either way it's a win/ win for Sprott. If he gets to open the bank it's good publicity if he doesn't it's even better publicity. I wonder will he screw up the application deliberately :)
More details here: Sprott Gold Bank
11 comments:
this is awesome. almost like a total satire mocking gold bugs: deposit your gold with us and we'll let you "spend" fiat currency against your deposit as you need to - ripping your eyeballs out on "exchange" rates the entire time. I can't wait to see the details.
Agreed KD - the primary beneficiary in this arrangement will be the Sprott family.
The base concept is okay though - I always thought the pre-federation USA method of letting individual bank entities issue their own notes is a good one.
Then the banking audit/stress test is already done as it allows the free market to determine the discount rate of said notes, and makes accounting a breeze. i.e. 'how many notes did you issue?', 'how much gold do you have?'.
Louis, I vote for 'Sprott publicity stunt'. And I predict a coming bull market in rhetoric. In order to sell this he has to bang the drum on a few popular precious metals memes.
Unless Sprott clearly communicates the distinctions between 'store of value' and 'transactional medium', then it is just more fluff.
i.e. he needs to be honest about how his product cleverly manages those differences, rather than just repeating precious metals memes to hawk his premiums.
Set aside your ideologies for a minute. Despite the obvious profiteering, this "service" aims to make your gold liquid. I feel this is the beginning of an important trend that could further drive the demand for gold.
How right you are on the trend.
Peter Schiff is offering a gold-backed mastercard. Same concept. No one is asking you to convert all your gold into dollars. Instead, this is a brilliant move to eliminate the stigma that gold is illiquid and actually encourages people to save in gold rather than cash. As for "ripping out your eyeballs with exchange rates," I'll reserve judgement until I see the details but every service has a cost.
It looks like the problem will be capital gains if you liquidate your holdings. That is you actually use your card and force a liquidation of your Gold.
Also, Schiff stated he will not be issuing a card to his US customers.
There is a trend here though and it only takes one smart guy to figure out a way around the rules.
That's not much different from paying tax on interest received on deposits (if there were such a thing), or paying capital gains on sales of PHYS. The bottom line is people buy gold to store wealth and preserve purchasing power. They buy it with the intention to consume in the future. Digitizing your gold in book entry form offers obvious benefits over carrying inflexible denominations of gold in a sack.
Btw, thanks for all the great posts. I've been a quiet reader for a while :)
I like this blog - some good stuff here and open to all opinions.
So...
Kid - you know I am fast loosing respect for your writings and "opposing views". I do always enjoy good balanced opposing opinions.
But slowly you are proving to me that you have something personal with Sprott.
"Ripping your eyeballs out with "exchange rates" blah blah. Every intelligent person will look at the detail and it will be competition to those that are already available. Isn't it always that as competition arrives so the service charges start reducing, assuming no collusion.
Tell me about your eyeballs being ripped out with the present banking system, new charges coming fast and furious, exchange rate rip offs, scalping pension funds, assuming tremendous risks based on our deposits as collatoral. And yes your comment about all banks having derivates in their banking devisions - so nothing unusual about Bank of America recently. So - your argument is like a kids - everyone else is doing it!!!
So if Bank of America would say we are increasing our reserves with something other than paper then I will be the first one to go there.
So, as mentioned there is that trend - ie Schiff, GoldMoney, Bullionvault and lesser known ones.
So when someone comes out with a service and if there is a need then great. Electronics charges come down in price as it matures.
The trend is that Gold will not be sold but spent in future. I don't care if you agree with that, its my opinion.
You are so detailed oriented and have so far not convinced me of your birds eye view ability and a systemic approach to debate.
So let me ask you this hypothetical guys.
If Schiff offered a service as described would you use it even though chances are you would have to travel to a foreign country to get your credit card and you probably would not be able to use it in the USA? As a matter of fact the bank in question would probably have to report all US citizens to the IRS.
(I'm assuming you guys are from the USA.)
What percentage of your "cash" would you put up?
Hey Louis, do you know Schiff's reasoning why he's not offering in the US? I think that would be my first question. No doubt there are challenges with these early forms of gold-money so my quick answer would be No. But as noted, this appears to be the makings of a trend. If in the future merchants are willing to accept gold as payment, it would allow us to get around liquidating whatever gold we have in the account. 1 loaf of bread = 0.2g gold. Transfer 0.2g gold to the merchants account. Until then, gold could be used as collateral for a line of credit, something like a secured credit card. That could help circumvent taxes as well?
Just a thought.
Mostly because it's a pain in the ass to set up a bank on the regulatory side. Of course once you are in you can be the biggest thief on the planet as long as you don't rob the big boys.
There are a lot of fiery hoops to jump through and it takes time. Also, there is a matter of trust (between bankers) because you have to insert yourself into the existing system.
Think integrating with Mastercard and Visa etc., payment clearing house integration.
A lot of back end IT stuff in other words.
Otherwise any jackass could open a bank issue cards to fake people and go nuts.
You have to be careful with every potential customer to make sure they are who they say they are otherwise now you are dealing with potential money laundering issues etc.
In short the answer is you have to be someone, know people and have a track record.
There is also the little matter of the Secret Service when it comes to Gold and they just love to put Gold bugs in Jail.
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