What is a Precious Metals Depository?

closed vault door in depository

If you’re an investor in precious metals, or even if you’ve ever considered investing in precious metals, you might be curious to learn how people are safely storing their physical gold or silver. A precious metals depository can be a beneficial resource for owners of precious metals bullion. Let’s take a look at what a precious metals depository is and some of the reasons you might want to use one.

What is a precious metals depository?

A precious metals depository is a storage facility designed specifically to house physical precious metals safely. Investors use them to safely store their precious metals without running the risk of keeping them at home.

How do depositories work?

A precious metals depository operates similarly to a high-end storage facility. Bullion investors start by opening an account at a depository. To deposit their bullion, account owners fill out a deposit slip, which lists the items that will be stored in the depository.

Owners can deposit bullion in their possession or opt for recently purchased precious metals to be delivered directly to the depository for storage. Precious metals depositories also keep bullion safe with state-of-the-art security, in addition to carrying insurance in the unlikely event of losses. In exchange for these services, customers will pay storage fees.

Why would you choose a depository over a home safe?

There are two main reasons for storing bullion at a precious metals depository, starting with space. Anyone with a substantial amount of bullion will need to have a safe large enough to store their precious metals, which can quickly take up a lot of space in your home (especially for silver, which is a lower cost per ounce).

The second reason is security. Most people choose to keep their cash safe in a bank, where there are vaults, cameras, alarms, and strict security protocols. Should the worst happen and the bank be robbed anyway, insurance will cover any lost funds.

Precious metals depositories take security as seriously as banks do, so unless you’re planning on investing an enormous amount of money into beefing up your home security, a depository will always be more secure than your home safe.

Is a safe deposit box at a bank a good alternative to a precious metals depository?

No, for several reasons.

First, possessions stored in a safe deposit box are not covered by FDIC insurance. The contents of safe deposit boxes are subject to seizure under Civil Asset Forfeiture programs in place in many states. Banks can be closed at any time (consider the March 6-10, 1933 “Banking Holiday” during which all banks were closed by Presidential order).

Finally, safe deposit boxes are simply not as secure as precious metals depositories. There’s more access and less accountability at a bank, with no one other than you keeping track of exactly what’s stored there.

How are the metals stored at depositories insured?

Bullion metals at a precious metals depository are insured to cover 100% of the value of the bullion. For many depositories, Lloyd’s of London, the well-known specialty insurance company, underwrites the policy. It’s imperative that all items stored at a depository have been accurately documented on a deposit slip, so in the event of an insurance claim, owners will be indemnified (compensated) for the full value of their lost bullion.

Why are they more secure?

Precious metals depositories hold very valuable precious metals and are secured both internally and externally. Besides being designed with high-level security as a top priority (unlike a house, which typically only has basic residential locks on doors and windows), depositories are monitored 24/7 by security professionals.

Entry to the premises is controlled and recorded, and there are additional layers of security once inside. Precious metals depositories consider just about every possible scenario, implementing security redundancies to ensure safekeeping. Furthermore, depositories have strict internal accounting measures in place to confirm that every depositor’s possessions are accurately recorded and tracked at all times.

Why do you need depositories for precious metals IRAs?

According to the IRS under IRC Section 408(m)(3), physical gold, silver, platinum, and palladium bullion must be kept with a bank or approved non-bank trustee. If you want to use your IRA to invest in precious metals, you can’t simply store them at home.

One unlucky couple in Rhode Island discovered this the hard way when they were slapped with a $270,000 IRS tax bill and nearly $50,000 in fines for storing their roughly $730,000 gold IRA assets at home. In short, the law requires anyone investing IRA assets in precious metals like gold to have an approved third-party IRA custodian store the physical assets.

What are IRA-approved depositories?

IRA-approved depositories are permitted by the United States government to provide precious metals storage for IRAs. As you can imagine, the IRS is very particular about the financial institutions it gives its stamp of approval to. There are currently seven IRA-approved depositories, including the Delaware Depository and Brink’s Global Services.

What else should you consider when choosing a depository?

First and foremost, a depository should have top-notch security and carry precious metals insurance. A proper precious metals depository will also regulate climate and humidity, providing the optimal temperature and moisture levels to protect your metals from tarnishing. Looking for a depository that undergoes regular audits can help reassure you that high standards of quality are maintained through frequent evaluations.

For individuals who want to physically check in on their precious metals bullion, it’s essential for the depository to be local, so proximity to one’s home or business may play a role in choosing a depository. Another priority can include privacy and confidentiality. Of course, everyone will likely consider storage and maintenance fees before signing off on any depository, mainly since most people store gold for investment purposes.

How are precious metals stored at a depository?

pile of gold bullion imageGenerally, there are two types of storage options – “allocated” (or co-mingled) storage and “segregated” storage.

Allocated storage means your bullion is stored alongside the bullion of other customers. Allocated storage works the same way your bank does. When you make a withdrawal from a precious metals depository, you’ll receive the same type of bullion you deposited, but it probably won’t be your exact bullion. If you deposit a 1 oz American gold eagle coin, you’ll still be able to withdraw a 1 oz American gold eagle coin, even if it’s not the one you deposited initially. This is because (in most cases) bullion is fungible (interchangeable) and, much like dollars you withdraw from the bank, doesn’t vary in value.

Segregated storage means you have a dedicated space that is the exclusive home to your bullion. With a segregated account, your exact precious metals bullion belongs exclusively to you, and you can store it with the confidence that your vault or bin will be yours alone.

Can you deposit more or withdraw precious metals from a depository? And how does that work?

Yes. Account owners can deposit or withdraw precious metals from their depository as long as the payments are current and the account is in good standing. To make a deposit, customers simply complete the accompanying documentation and have the bullion delivered to the depository.

You can make withdrawals in person during regular business hours, or a request for shipment to a third party can be made. Again, supporting documentation must be completed to make a withdrawal, and specific fees may apply. However, if you have your precious metals invested in an SDIRA, you cannot withdraw it (without penalties) and take it home until you’re at least 59-½ years old.

Is a precious metals depository right for you?

Deciding if a precious metals depository is the right choice for you ultimately comes down to several factors. For anyone with a precious metals IRA or a substantial amount of bullion, a precious metals depository is a must.

For individuals concerned about security or insurance, a precious metals depository is a good option. However, there are alternatives such as banks or third-party storage facilities which could be viable substitutes.