There’s something surprisingly valuable in some nondescript buildings in Wilmington and suburban New Castle County: Lots of gold, silver, platinum and other precious metals.
They’re in depositories run by First State Depository (which opened in 2006), Delaware Depository (1999) and International Depository Services of Delaware (2007). Delaware Depository’s 6.1 million square feet of storage in four sites makes it America’s largest outside New York, according to president Jon Potts.
Why here? “Simply put, this is an ideal place for a precious metals storage facility,” said Alisa Moen, president of International Depository Services (IDS) Group. Its website cites its location in “the heart of America’s primary business corridor. Moen praised “a progressive business environment that is tax-neutral in most circumstances.”
Delaware Depository’s website goes into detail, noting it’s “away from the threats associated with major political and financial centers such as Washington, D.C., and New York City, yet conveniently located near major transportation hubs. Delaware is relatively free from natural disasters, and the state imposes no sales tax on the purchase, administration or storage of precious metals. There are no corporate net worth, personal inventory or transfer taxes applied to bullion transactions.”
The three describe similar security, including a very strong vault, 24/7 video monitoring, checks and balances by multiple staff members and proprietary procedures.
Their rational concerns about security are contrasted by giving specific addresses to some facilities on their websites. Moen said that’s for audits, and Potts noted it’s for deliveries.
To comfort customers, all cite approvals or licenses from various exchanges and lots of insurance. For example, First State has “an approximate insured contents limit of $400 million, depending on the mix of assets held.” Delaware Depository has $1 billion in all-risk insurance through Lloyd’s of London.
Precious metals generally refer to gold, silver, platinum and palladium, stored as coins and ingots (aka bars or bullion). Exceptions include jewelry and rare coins that are worth more than their meltdown value and the six industrially important elements known as the palladium group metals, which are often stored as “sponge,” a powder that Potts said looks like gray dirt.
Owners of precious metals have three choices for storage: their own places, banks and depositories.
Depositories say at-home storage is costly, considering insurance, authenticity testing that could be required before a sale and delay in delivering to the dealer, time when the market price could dip.
“Most banks no longer allow clients to store precious metals [or] bullion products in safe deposit boxes and have limited, if any, insurance coverage,” Moen said. (Collectible cash and coins are an exception to that rule.)
Their answer? Their own businesses. Depositories say they’re also an authorized answer to an Internal Revenue Service rule on precious metal held in Individual Retirement Accounts. You can’t hold the valuables yourself. Delaware Depository is a state-chartered, limited purpose trust company, Potts said, clearing it for serving IRAs.
The depositories can also help with logistical and legal elements and authentication, which includes “precision scales, magnifiers, ultrasounds, eddy-current testers and X-ray machines,” Delaware Depository said.
All three point out that items are held in custody. This means metal is stored off the balance sheet and is not considered an asset of the company.
“First State does not trade, make markets or buy or sell inventory,” it says. IDS doesn’t and is a subsidiary of Texas’ Dillon Gage, which does. Delaware Depository doesn’t but has an affiliate that does.
As for costs, “Each of us offers a standard rate, but offers a slightly different service set,” Potts said, citing auditing, handling and reporting. “Every item that comes through is tested for authenticity” at Delaware Depository, he added. “Having multiple sites also gives us a complete disaster recovery plan.”
“All account pricing is volume-dependent, and we work closely with our clients to accommodate various levels of holdings,” Moen said. First State touts “the lowest storage rates of any depository in the United States.”
Customers do have one clear choice: storage segregated by customer or non-segregated, also called co-mingled or bulk storage. “Segregated storage is a common choice for special year, specific brand, numismatic coins or sentimental products,” Delaware Depository said. “Non-segregated storage is the preferred choice for fungible products.”
“Fungible bullion comprises products that can be substituted for purposes of shipment or storage,” Delaware Depository explained. “Fungible bullion products include small bullion coins and bars. Much like a stack of fungible $20 bills, 1-ounce gold bars have unique serial numbers. Again, like $20 bills, although each bar has a unique serial number, they all have the same value and are interchangeable.”
The bottom line: Segregated storage is more labor-intensive and hence more costly.
Correction: An earlier version of the article (published in the 12.12 print edition) referred to Delaware Depository as a special service trust rather than a limited purpose trust.