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Elemetal Vault

This page discusses the Elemetal Vault, as it pertains to typical retail investors.

Update

The information below was posted about April 9. On April 14, 2017, I heard from Elemetal Vault, and the metal they purchase for customers is stored in a Brinks facility in a separate state, and not subject to any liens. This new information eliminates the concerns I had unique to Elemetal Vault.

Overview

The Elemetal Vault is advertised by Provident Metals (an Elemetal company) as a "new level of security" and refers to "the protection of vault storage." The landing page refers to it as letting you "store allocated bullion securely," and says customers can "store their allocated metals with the world’s leading secure vault providers." The Elemetal Vault website states "the metals are recorded and stored as your legal property" and "allocated bullion is safe from insolvency." It is audited by Plante Moran. And finally, "while your gold and silver are allocated, they are not segregated. Frankly, we just don’t see the benefit to investors."

For the most part, it sounds like run-of-the-mill allocated storage: you store your metal, you own it, and they protect it. It isn't really quite as glamourous as that: you really just buy a share of a large bar (but do, they say, own it, and are safe from bankruptcy).

Concerns

In general, I recommend never storing your metal with the dealer you buy it from. Why? It's much easier for a company to steal your money on their own than with another company involved, as we saw with Bullion Direct and NWTM. And as we learned from Bullion Direct and NWTM, even reputable companies won't be entirely forthcoming with what they are doing. So I feel compelled to dig deep here, and point out even the most minor concerns or inconsistencies.

The first place I look here is their Terms and Conditions. And the first word that jumps out at me is "pool" (with a metals pool, the metal usually belongs to the company; in fact, Kitco claimed that their pool metal belonged to customers, yet it was seized by Revenu Quebec). At first glance, it isn't a problem: the term "Pool Account" refers to funds that are in a pooled bank account. But the Terms later states "Customer effectively owns and has title to a portion of Metal in the Pool Account, which includes Metal of other EV customers." I'm not a lawyer, but that seems very sloppy, for 2 reasons: [1] metal purchases are going into an account defined as being funds, and [2] "pool" metal typically refers to metal that doesn't have to be 100% backed. Sloppy isn't something you want.

So far, it doesn't look too bad.

But, the next problem is that the metal is stored in a Brinks vault -- but Brinks operates an Elemetal vault that appears to be an OPM in Ohio ("enabling OPM customers to store materials in a facility that is maintained by Brinks"). Elemetal doesn't seem to say anywhere what their contract with Brinks is -- does Brinks simply guard the vault (in which case Elemetal has an easy opportunity to use customer metal), or do they actually operate the vault as if it were a Brinks-owned vault (making it harder for there to be any wrongdoing)? Then, we get to the audit: yes, the metal is audited quarterly, which is good. And Plante Moran apparently verifies that there is at least as much metal as is owed customers. But what if Elemetal fills the vault with OPM's own metal? Does Plante Moran verify serial numbers? We do not know.

After that, there is the concern about liens. Specifically, the Bank of Nova Scotia in 2014 filed a lien against metal that the Bank of Nova Scotia provided as part of a consignment agreement with Provident Precious Metals and "certain of its affiliates." It covers the original metal provided, and anything made with it (e.g. smaller bars or coins). The address of the lien is that of OPM, which is where the original Brinks vault is/was. Reading that, it sounds like it would be very easy for Elemetal to get into trouble with the storage: if there is a lien against the bars created by OPM, and Elemetal uses those to back the Elemetal Vault holdings, Elemetal likely cannot transfer ownership to customers. That may be a big "if" (but so is Elemetal refining $3B of smuggled gold).

Finally, there is the question of what happens with fractional ownership in a bankruptcy. Elemetal says your metal is safe. However, in the event of an impending bankruptcy, it would be impossible for Elemetal to return your metal. Most likely, a bankruptcy Trustee would be assigned the task of verifying ownership of the metal, selling the bars, and sending you your proceeds (which might have costs subtracted from them, which could be substantial). And that process could take many months or perhaps years. We just haven't seen what happens in a case like this.

Summary

The first thing to be aware of with Elemetal Vault is that you aren't buying individual pieces of metal; you are buying "shares" of a bar. So if you buy 100 ounces of silver, you may own 1/10th of OPM bar #14-2304.

The second thing you need to be aware of is that if you can trust Elemetal, your metal should be safe. However, as we know from Bullion Direct and NWTM, trust is something quite problematic in the bullion industry (those companies were both around for over 15 years, and lied about allocation/insurance).

The third thing to realize is that nobody knows what would happen in a bankruptcy to stored metal if bars were titled to multiple people.



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