Interview with Paul Tustain Founder & Director of BullionVault.com Pt. 2
Mark Herpel
February 22, 2008
(Q) Can I transfer funds from my BV account to friends like I can with PayPal?
Absolutely not. If you could, then anyone who used a clever keyboard logger to find out your password could move your savings away from you. On BullionVault you have a permanently linked bank account which can only be changed by duplicated requests from yourself and your new bankers. It cannot be changed on-line. This is what I mean about BullionVault storing value. When you want to pay people use a payments system. DGC´s are pretty good, so are checks, and cash, and credit cards, and PayPal. We don´t compete in the payments system space.
(Q) When I sell gold, how quickly can I receive my funds at a US bank?
Your sale settles cash to your BV account instantaneously. You can enter a withdrawal request immediately, and we transmit funds by the end of the following business day. In the US you will usually receive same day cleared funds on the day of transmission.
(Q) If gold is fluctuating wildly in price I don´t want my new buy order to be held up with some sign up procedures. If one of our readers wants to open an account at BullionVault, how long does your sign up, fund and buy process usually take?
Signing up takes 2 minutes - really - and you get a free gram of gold when you do it.
Sending money can be same day. It depends on how well your bank knows you. Larger sums with less well known bank customers usually mean the bank wants you to visit, prove your identity and sign a bank-wire request form. Your money will usually arrive in London the next day - but if you are up early enough (i.e. while London banks are still open) we get US East Coast money within about two hours. You can pay by check or on-line billpay too, but that takes a few days to arrive. The details are on our Help System.
Buying the gold takes a matter of seconds. Many users contact us when they´re ready to buy and we tell them on the ´phone which buttons to press.
(Q) What is your goal in operating BullionVault, how would your mission statement read?
I can tell you that verbatim. It´s on the website...BullionVault´s objective is to create the world´s most cost-effective, secure and accessible market in professional grade gold bullion.
We want to do this because :-
We believe there is a deficit of financial responsibility in many modern governments and financial institutions.
We believe that modern currencies and other paper based value systems will inhibit savers from retaining their domestic and worldwide purchasing power.
We believe that using gold to provide protection from this problem is a strategy which has become inaccessible to individuals.
We believe that we are uniquely well qualified to re-build that accessibility and to manage the service in a way which maximizes security, accessibility and value for our customers.
(Q) I know you are in the UK and your main account there is with Lloyd´s TSB. Are US buyers in for a big time ´overseas´ wire fees and waits when they send funds from the US?
US wires are sent domestically to our US collections account at Bank of America in New York. Depending on your bank it costs about $30 for same day funds. The international wire is done automatically from Bank of America to us in London, and at our expense, so US users don´t have to concern themselves with it. They are paying for a normal domestic wire transfer. If they choose checks or billpay the transfer is free, but it takes longer to arrive.
(Q) How fast do buys and sells settle on BV?
Settlement is instantaneous. A seller must have vaulted gold in the offered vault to be allowed to offer gold on BullionVault´s Order Board. A buyer must have cleared cash in the currency of the bid. Since all the resources are on-hand we have immediate settlement.
(Q) If I send BV a million US dollars tomorrow and buy gold and a month through some act of God, your company fails, where does my gold ownership stand? Is there a permanent record located with a audited third party where I could claim my proper ownership?
If any or all of BullionVault, Lloyds TSB Bank, and Via Mat fail your gold is perfectly safe. The reality is there would be a delay in getting your hands on it, but it is your property, and no liquidator can do anything other than return it to you. BullionVault is run more cautiously than any other business I have ever known. Shareholders funds are all held as gold and cash (no liquidity problems here) and currently amount to about 6 times annual running costs.
Unlike a bank we do not lend. All gold and cash in BullionVault is immediately available, so there is no "borrow short and lend long" liquidity problem. A ´run´ on BullionVault would be profitable for us and increase our financial strength, as we earn commissions from customer sales. Permanent records of ownership are produced daily and stored daily in at least two locations. The ´alias´ list is in the public domain. You can use your RSS Newsreader to download it daily.
(Q) Do you allow corporate funds, both short term and long term to be used for the purchase of bullion? If IBM came along and said, we want to invest a portion of our pension fund...?
Yes - but I expect IBM´s pension fund might buy an amount above $10 million, and at these levels direct vaulting may be a cost effective option. Even then I´m fairly certain we can get the deal done faster and cheaper than anyone else, so it may be the case that we would be used temporarily, to buy and store bullion, while IBM´s trustees set about negotiating their own direct storage contract.
(Q) I´d like to see the use of digital gold (DGC) become more mainstream, and gold used more for daily business and money transactions. Do you agree that Internet business could be expanded in this direction or should we only be using gold as a store of value, a trading and investment vehicle and a ´better´ savings account?
I think I´ve answered this before. Yes - gold is honest money. But honest money is not popular with politicians in the long term, so they tend to arrange for its eventual failure, usually accidentally. In my opinion DGCs are fighting an uphill battle against Gresham´s law, although their hearts are in the right place.
(Q) What does BullionVault offer the regular monthly investor who wants to buy a couple of ounces each month for his long term investments....what advantages does BV offer over the one ounce Krugerrands found at a local coin shop?
You can set up a standing order easily enough. We´ll email you when your money clears, and then you can buy your gold at the moment you choose.
As for coins, the problem is that they are bought on very large premiums to the spot price, they are sold at substantial discounts to the spot price, and they leave you with all the domestic storage problems which wealthy people try to avoid. I keep six gold coins, three Sovereigns and three Liberties (I like the feel of the Liberty "Buffalo" best). I expect they´ll eventually be lost or stolen or I´ll have to leave them to someone when I die. But there´s a tiny chance they´ll be useful before then!
(Q) Will my fees get lower if I begin spending more each month?
Purchase commissions start at 0.8% and rapidly diminish rapidly above $30,000, down to a minimum of 0.02%. We aggregate your investment over the year, so you don´t have to buy all at once to get down to the lower commission rates. So - yes - your fees steadily reduce.
(Q) What´s goes on at your news and analysis web, over at http://goldnews.bullionvault.com/ this seems like a fantastic place to learn more about gold and trading...
We try to keep the content high quality. We don´t give free access to all comers, but post only what we rate highly. Adrian Ash is the editor, and his own writing is very well known in the gold market. I think he writes more original and sharp comment on the gold market than just about anyone. There´s a large archive all on line. Lots of this stuff is - as you say - excellent.
(Q) I´ve spent weeks reading Galmarley.com it is an EXCELLENT resource for anyone wanting to learn more about gold and money. Who runs that web and do you contribute?
Galmarley´s name is a tribute to three writers. Professor John Kenneth Galbraith, Alexander Del Mar, and Robert Smitley, all sadly now dead. Between them they taught me enough about economics, gold and investing to set me on the road to creating BullionVault. I wrote most of the Galmarley site myself. I hope the information helps people get to grips with the whole gold picture.
(Q) Is BullionVault regulated by the FSA there in the UK?
No. It´s regulated by straightforward property law, which is far more reliable at finding and prosecuting wrongdoers than complex securities law seems to be. Because our users are buying physical gold, not some complex gold security, and because they are exchanging their money for physical bullion at the instant of trade, they are deemed in British law to be competent to understand the nature of the transaction.
The entire physical bullion industry in London is regulated by ordinary property law in this way, and it has not suffered from some of the imaginative scams that have materialized elsewhere in the securities markets. This is - in part - why London remains the biggest and most trusted physical bullion market in the world. We buy all our gold through London dealers.
(Q) Who handles the vaulting of your gold bars and in what jurisdiction or locations?
Via Mat handles all our vaulting. It is Switzerland´s main vaulting business. It operates in all three of London, Zurich and New York.
(Q) What can you tell me about the vault services from ViaMat? Why do you use them?
The vault operators need to operate in each of London, New York and Zurich. There are only 2 practical choices - which are Via Mat (Swiss owned) and Brinks (US owned). We used to vault at Brinks, but we switched to Via Mat in April 2007. Our customers seem to be happier with Via Mat because of its Swiss ownership.
(Q) Do you currently have a referral policy if I decide to promote and send visitors and customers to your web site? Can I earn gold?
Certainly. Where new customers are referred to us by inbound links off other peoples´ websites we share 25% commission with the referrer. They get it credited automatically to their own BullionVault account at the instant the client trades.
(Q) Do you charge a monthly service fee like a bank or is there a storage fee based on how much bullion is in the account?
We charge a monthly fee. It is 0.12% per annum charged monthly in arrears, and it is subject to a $4 per month minimum. You will pay $4 a month if your holding is less than $40,000. $100,000 stored will cost you $10 per month. You can use all three vaults if you wish, as this doesn´t escalate your storage bill. Those fees includes insurance. Gold is very easy to store because there are no complex stock splits, dividends, rights issues etc to administer. It simply sits quietly in a highly secure vault. That´s why our storage rate at 0.12% per annum (less than 1% after 8 years) comes in at less than a tenth of share portfolios which I read recently charge an average of 1.31% per annum in management fees.
(Q) Has BullionVault experienced any fraudulent transactions or accounts since it has been open?
We are not aware of any at all. I hope that does not suggest complacency. We reconcile all our cash statements and bar lists every day, and publish the result on-line. We send statements to all customers monthly. We provide extensive feedback to registered email addresses when things happen on their accounts, and we notify log in to cellphones via our Burglar alarm. There is a subtlety about the Burglar alarm and the mandatory return of cash to a customer´s own bank account which is worth sharing. If a criminal logs into an account the account owner will probably contact us immediately - if their cellphone is switched on.
The criminal will not know. We will trace the connection, and inform the local police. The point is that an immediate response like the Burglar Alarm greatly increases the risk of being caught, while the inability of moving funds to anywhere other than the rightful owner´s bank account greatly reduces the motivation for trying to hack.
(Q) What excites you about gold bullion?
I´m not very excitable. I think gold - particularly held overseas - is necessary for effective wealth storage in the modern era, and it will for some years be an extremely important component of private savings. What I do get a kick out of is providing something which is so important, and so fairly priced, that customers go to the effort of writing thank you letters. We publish many of them on our Customer Comments.
(Q) What is a ´London Good Delivery Bar´?
A London Good Delivery bar is a big ´James Bond´ style bar of gold. It weighs about 400 oz and is worth about $350,000 [at $880 per oz]. It was made by an accredited refiner, and has stayed forever in accredited professional vaults, which gives it very high integrity. On the professional market a seller must deliver these ´good delivery´ bars to the buyer, or the delivery is bad and the seller won´t get paid.
(Q) When you say, "Here is a couple of 400oz bars" do they both weigh exactly 400oz even?
No. There is a surprisingly wide manufacturing tolerance. But everything takes care of itself, because when you buy a bar the market multiplies the fine weight of the actual bar by its purity, and both of these amounts are known to very high precision on a good delivery bar (they are stamped on it by the bar´s original assayer). The amount paid for a bar is the agreed price multiplied by the actual pure gold content of the specific bar.
Nobody pays either for impurities or for a specific bar being underweight.
(Q) Who is your ideal customer?
There is no ideal. We price the service so that the service as a whole is good business whatever the size of the customer. Nor do we mind where the customer comes from. Unfortunately certain parts of Africa and some other parts of the world lack a banking infrastructure of sufficient integrity for us to do secure business there. But we already have customers from more than 80 countries worldwide.
(Q) Do you have any real competition for BullionVault? If so, who would you consider to be your online competition?
There is lots of competition to keep us on our toes, but it isn´t all on-line. Obviously DGCs are part of it.
(Q) What methods of payment options do customer have for funding dollars into a BV online account? Can I use my credit cards?
We accept checks (US and UK), most on-line banking payments, and international bank to bank payments.
You cannot use a credit card on BullionVault. Credit card transactions usually cost 1.5% or thereabouts. We didn´t go to enormous lengths setting up BullionVault to be able to provide gold at well under 1% costs to customers only to see 1.5% going in credit card transaction fees! I´m afraid credit cards are for retail, where sellers´ margins are 50% or more. They´re not sensible for investors.
(Q) Some people have voiced concerns that BullionVault is a "sealed system", meaning that if there are no counterparties within BullionVault there could be a liquidity problem. Is this a valid criticism?
No. I don´t think so. BullionVault is not a sealed system with a fixed amount of gold. It continually transfers gold to and from the main bullion market, and these movements reflect the aggregate retail customer demand or supply within BullionVault. On the professional side we buy up to five big bars at a time (more than $1.5 million) when our inventory is running low, and we sell them back when we have too much inventory. These deals can happen several times a day. But on the retail (internet) side we allow trades of one gram! The aggregate of these small retail trades is being offset regularly by big bar trades on the professional side, which keeps us broadly market neutral. Think of BullionVault as a buffer between professional and retail markets, where the highly efficient BullionVault.com system grants retail size orders access to professional market pricing, which it can do because the retail trade administration is highly automated on-line.
But, just in case anyone should be concerned, we allow unique and very special extra privileges to all our users. Firstly some 35,000 people can compete with us to buy gold on our own public order board, outbidding us where we are bidding too low. And secondly they also have the right to deal on main market once they are in position to make settlement. OK, so main market settlement is denominated in 12.4 kg bars beyond the reach of most of those 35,000, but many of our customers have at least this; and the combination of these rights provides an economic rationale - arbitrage profits - for our users to make bids should BullionVault prices diverge from the main market price. I believe it is a far safer market which depends for liquidity on people seeking profits rather than on some more-or-less reliable commitment by the market´s operators to offer future liquidity. Of course the fact that these rights exist for all BullionVault users means that prices on BullionVault have never gone to a material discount - or premium - to main market gold.
Your eagle-eyed readers will spot that this mechanism depends on there being a main market in gold. Here we can only look to history. Liquidity in most other forms of wealth, like currency and securities, comes and goes, and when it goes it is usually permanent, signifying the worthlessness of the underlying asset after a few decades of usefulness. Nothing has lasted like gold - or come anywhere close - through about 4,000 years.
(Q) How much actual gold do you have on you right now?
Personally? I don´t carry any. I used to carry a sovereign, and use it to show people at business dinners how difficult it is to get people to accept gold as a payment. But I lost my wallet and the sovereign was the one irreplaceable thing in it! I don´t carry any gold any more.
I´d like to thank Paul for taking time to answer my questions and encourage readers to visit his web business. BullionVault really is a remarkable way to purchase gold online.
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