Gold Storage: Fact Checking Germany, Canada, and the UK
“The most contrarian thing of all is not to oppose the crowd but to think for yourself.”
Peter Thiel
Key Takeaways
- In turbulent times investment decisions turn towards wealth preservation rather than profit-seeking. Rather than a focus on the price of gold, investing in physical gold involves concepts of trust, security, risk diversification, and hedging against the vulnerabilities of the current monetary system.
- The outbreak of the Covid-19 pandemic has heralded the final innings of the current era. With blinding speed, liberties are taken away by emergency orders, while the cracks in the financial system threaten to break it apart under the weight of global indebtedness – rising inflation rates being just one symptom of many. The question of wealth preservation is receiving renewed attention.
- Most recently, wealth confiscation has become socially acceptable again. Maintaining ownership of your bullion in a secure storage facility is just as important as the investment decision to diversify into gold.
- In previous years’ In Gold We Trust reports we have covered Liechtenstein, Switzerland, Singapore, New Zealand, Australia, and Dubai as well as the USA, Cayman Islands, and Austria as storage locations for gold bullion.
- This year we will examine Germany, Canada and the UK including the Channel Islands as jurisdictions for secure gold storage.
Why the Safe Storage of Gold Is More Important Than Ever
With the Covid-19 crisis unfolding over the past two years, the aging process of the global financial system has only experienced further acceleration. Never before has the public debt load reached such heights, in a world more interconnected than ever before, making it a global issue rather than a regional one. At the same time, the political response to this global health emergency has significantly weakened people’s trust and confidence in societal institutions, including science, democracy, and law and order.
The outbreak of the Ukraine crisis has proven to be an additional catalyst: In response to Russia’s actions, the West has levied hefty economic sanctions against Russia. Amongst the first measures was the seizing of Russia’s foreign exchange reserves and the freezing of assets of over 400 individuals with allegedly close ties to Putin. However, the ultimate goal of the Western authorities is precisely to adjust the legal framework in order to permanently confiscate the assets frozen under the sanctions-regime. This is nothing but a slippery slope. Once the rule of law has been suspended for a so-called justified exceptional case, then the exception can be expanded arbitrarily. All this brings a new urgency to confronting the obstacles to wealth preservation.
Gold has weathered many crises in the past and thus, unsurprisingly, many turn towards the precious metal in times of uncertainty when looking for a trusted investment disconnected from the financial system. The principal objective for physical gold holdings is that they serve as a strategic asset, uncorrelated to financial markets while at the same time providing access to liquidity.
Gold is exceptional in providing such independence from the global financial system, eliminating all counterparty risk. Being both indestructible and portable allows it to be stored hidden in a vault, even for centuries, without risking a loss of purchasing power due to default. Increasingly appreciated is gold’s cyber immunity, protecting it from nefarious hackers. In combination these features make gold an effective risk-diversifier.
The determination of a secure storage location is a highly personal decision that must be tailored to the bullion owner and involves careful considerations of security, third-party trust, and liquidity. There is no one-size-fits-all solution for a gold investor. Different jurisdictions can be compared along measures like economic freedom, rule of law and enforcement of private property rights, political and economic stability, and historical track record of the country.
In previous years’ In Gold We Trust reports we have covered Liechtenstein, Switzerland, Singapore, New Zealand, Australia, and Dubai, as well as the USA, Cayman Islands, and Austria as storage locations for gold bullion.[1] This year we will examine Germany, Canada and the UK including the Channel Islands as jurisdictions for secure gold storage.
Germany – the Reliable Constant in the Heart of Europe
Photo credit: wikimedia
Located in the heart of Europe, the Federal Republic of Germany has become the world’s fourth largest economy (USD 3.8trn) and the economic powerhouse of Europe, garnering fame for its precision, acumen, and efficiency.
Bordered by nine countries – Poland, Czech Republic, Austria, Switzerland, France, Luxembourg, Belgium, the Netherlands, and Denmark – Germany is situated on the North European Plain, with access to the North Sea and Baltic Sea and mountainous terrain in the south stretching towards the Alps. With a surface area of 350,000 sq. km, it is only the 7th largest country in Europe, yet with the Danube, Rhine, Oder, and Elbe Rivers, Germany has the most concentrated navigable river system in the world, which allowed it to become one of the leading export nations despite having few physical resources. The lack of natural boundaries, both towards the east and the west, in combination with Germany’s overall flat topography make the country vulnerable to invasion. Over centuries these topographic imperatives have shaped Germany’s greater strategy: gaining regional dominance through internal stability and strength in order to deter neighbors from invasion.
This strategy has not always proven successful, locking the country in an ongoing rise-and-fall cycle. For centuries the territories of today’s Germany were a collection of kingdoms, principalities, and city-states that formed part of the 1000-year-long Holy Roman Empire. Only in 1871, after three major wars, did a unified Germany emerge, dominated by Prussia. However, the precarious balance of power in Europe could not be sustained for long. When tensions again escalated toward World War I, Germany saw itself as obliged under multilateral defense agreements among the powers to support Austria by declaring war on Russia, thus triggering a two-front conflict, as France was in alliance with Russia – an outcome that Germany had historically sought to avoid.
After its defeat in World War I, Germany was allowed to remain as a republic by bearing war-reparation costs, but it was no longer a monarchy. Hyperinflation caused by the war-reparation costs and increasing societal division paved the path to Hitler’s rise, the Nazi –regime, and World War II. With the end of World War II, Germany was divided. While East Germany became part of the Soviet-dominated Eastern Bloc, West Germany became a founding member of the European Communities (ECSC, EEC, and Euratom) and NATO. This division ended only with reunification in 1990, almost exactly one year after the fall of the Berlin Wall.
A crucial factor in Germany’s rise to becoming one of the world’s strongest economies was it’s the successful leveraging of its high-quality manufacturing sector towards global exports, supported by German efficiency and a well-educated workforce. “Made in Germany” says it all. Originally imposed by the British as a label suggesting inferior quality, today it has become a unique selling point, promising excellent quality, durability, and reliability. Furthermore, Germany’s decentralized and federated governance structure facilitated the emergence of a strong small and medium-sized business landscape with a multitude of champions in niche sectors. The success of Germany is further based on a sound rule of law – it ranks 5th on the WJP Rule of Law Index – while corruption is very low. As a result, Germany offers a high living standard to its population of just over 83mn. In 2019, it ranked 6th on the Human Development Index.
An important role in Germany’s social stability is played by the country’s extensive wealth redistribution, providing a generous system of government services from free education to universal healthcare to pensions to the German population. However, this setup is increasingly facing challenges, as the German population is aging rapidly. With a fertility rate below 1.6 and a median age of 46 years, Germany is heading for a demographic demise – unless it can be counteracted. This trend will only reinforce the country’s dependency on exports – for many years it has registered a trade surplus contributing almost 50% of Germany’s GDP.
Exemplary of the German mentality is fiscal prudence, reinforced through the hyperinflation of the Weimar Republic. Unlike most other European countries, Germany has been determined to maintain a “black zero”, that is, a balanced federal budget. Since 2012 the debt-to-GDP ratio even reversed, falling below the Maastricht criterion of 60% again. However, the economic difficulties caused by the Covid-19 crisis proved too challenging, and Germany decided to abandon its self-imposed fiscal reticence to prevent an economic recession, resulting in a 10% jump in the debt-to-GDP ratio.
The German central bank, the Bundesbank, has the second largest physical gold reserves after the US, currently 3,359 tonnes. In relative terms this equates to a 65% share of Germany’s total FX reserves, similar to the US’s share. The majority of those reserves were accumulated in the 1950s and 1960s by converting US dollar surpluses. Significant payments in gold were made upon the foundation of the European Monetary System and upon the creation of the European Central Bank. Since 2000 the country’s gold holdings have decreased only slightly, for the purpose of minting coins. Headlines were made by the German Bundesbank’s gold repatriation scheme, which brought more than 600 tonnes of gold back to Germany, making Frankfurt home to one of the largest stockpiles of gold in the world.
Cental Bank Gold Reserves per Capita, in Troy Ounces, 2020
Source: World Gold Council, OECD, Incrementum AG
Gold enjoys great popularity amongst German retail investors. According to a study conducted by the German Reisebank and the Research Center for Financial Services at Steinbeis University Berlin, German adults own an average of 75 grams of gold. This number includes a 4-gram increase – or 5.6% – since the outbreak of the Covid-19 crisis. It is estimated that more than 60% of gold owners are invested in jewelry, while only every fourth German adult is invested in physical gold such as coins and bars. With gold holdings of about 7,500 tonnes, German private individuals own 2.7 times as much gold as the German central bank. In total, approximately 12,000 tonnes of gold are being held in Germany.
The German gold market operates in a decentralized network of banks, refineries, wholesalers, and retailers. Due to geographical proximity, the German gold market is also well integrated with those of Switzerland and Austria. Important for gold investors is the exemption of gold from the VAT, while silver, platinum, and palladium do fall under this tax or are subject to differential taxation. In addition, price gains on gold are tax-free for private investors after the speculation period of one year. In the course of increased efforts against money laundering, cash-loving Germany has clamped down on cash transactions in recent years. While in 2017 the upper limit for anonymous cash payments for gold purchases stood at 14,999.99 EUR, it was subsequently reduced to 1999.99 EUR in 2020.
Number of ounces that can be purchased anonymously, 01/2010-05/2022
Source: Federal Reserve St. Louis, Incrementum AG
Further challenges for the private and anonymous ownership of gold lie ahead. A member state of the EU, Germany could become subject to a European Asset Registry – once it is implemented. The EU Commission has already given the order for an initial “Feasibility Study for a European Asset Registry in the Context of the Fight Against AML and Tax Evasion”. The main objective of such an EU-wide asset registry is to build a huge central database containing all assets, including art, real estate, cryptocurrencies – and gold.
While the advantages of Germany’s strong legal and political environment, supported by a resilient economic system are obvious, its risk-averse but very gold-friendly culture make Germany to one of the top bullion storage jurisdictions in the world.
Canada – the Most Unpretentious Place to Store Gold
Photo credit: Pixabay
Canada is the world’s second largest country by land surface, covering an area of 9,984,670 km2, yet with only 36mn inhabitants it ranks amongst the least densely populated countries. As many parts of Canada are uninhabitable, either due to climate or terrain, the majority of its population is settled in a narrow corridor along the US-Canadian border. This border is over 7,000 km long and is the longest in the world, stretching from the Atlantic to the Pacific. Toronto is Canada’s largest city and is well-known to gold investors as the mining capital of the world. Ottawa, the capital of Canada, is a small city, while Montreal is the cultural hub and one of the oldest cities in North America. Vancouver is a trendy, bustling port on the Pacific Ocean.
Perhaps Canada’s most unique geographical feature is the Canadian Shield, also known as the Laurentian Plateau, an area mostly scoured by glaciers and left with thousands of shallow lakes and thin soil. The Shield, extending over about 8mn square kilometers and covering more than half of Canada, makes those regions difficult to inhabit, thus pushing the population centers southward. Together with the Rocky Mountains in the west and Canada’s sheer size, it presents Canada’s main geographical challenge: maintaining unity across the various population centers. One of the early efforts to overcome this challenge was the construction of the Canadian Pacific Railway in the second half of the 19th century.
The first European colonists from France and Great Britain arrived in the late 15th and 16th centuries, establishing the first permanent settlements at Port Royal (in 1605) and Quebec City (in 1608). In 1763, after the Seven Years War, France ceded most of its territories on the North American continent to the UK. The legacy of two languages remains today. About a century later, the Dominion of Canada was established, uniting three British North American provinces, the Province of Canada, Nova Scotia, and New Brunswick, into one federation. Over the next 82 years Canada continued to integrate other parts of British North America, resulting in the current nation of ten provinces and three territories that has been in place since 1949.
Politically, Canada has had a responsible government, i.e., one that has adhered to the principle of parliamentary accountability, since 1848; yet Britain ruled in matters of foreign policy and defense. Under the Statute of Westminster, the British Parliament acknowledged Canada as co-equal with the United Kingdom in 1931, then granted Canada full sovereignty under the Canada Act in 1982. Today, Canada is a federal parliamentary constitutional monarchy. Queen Elizabeth II is the reigning monarch, providing the source of authority, albeit today in rather a symbolic manner. The Canadian Parliament is dominated by the two relatively centrist parties, the governing Liberals and the opposition Conservatives.
Given its British legacy, Canada’s legal system follows common law, with the exception of Quebec, which follows the French tradition of civil law. In a worldwide comparison, Canada’s legal system ranks amongst the top ten judiciaries. This picture is confirmed repeatedly by high scores regarding property rights and by low scores regarding corruption.
Unease amongst investors mounted recently, when the Canadian finance minister enforced the freezing of financial assets of individuals related to the trucker-convoy protests. This was possible only through the use of the Emergencies Act, which was resorted to for the first time since the law was passed in 1988. The banks were instructed by the authorities to freeze assets and suspend bank accounts without a court order and without facing civil liability. Moreover, under the umbrella of the Emergencies Act, Prime Minister Justin Trudeau expanded the country’s anti-money laundering and counterterrorist financing legislation, making all payment services providers and crowd-funding platforms subject to FINTRAC reporting. Canada’s state of emergency is over, but the cat is out of the bag – all digital assets are subject to government sanction at any time and without any due process.
With an economy worth USD 1,644bn, Canada rank among the G10 countries, just behind Italy in the 9th position and ahead of Russia in the 11th spot. Because of its geographical imperatives, transporting goods proved most efficient across the southern border, leading to strong trade relations with the US. In 2021, Canadian exports to the US amounted to USD 378bn, making the US its main export market. Meanwhile, US exports to Canada stood at USD 306bn. These numbers highlight how economically integrated the two countries are. Moreover, Canada has a significant interest in maintaining peaceful relations with its powerful neighbor.
While challenging for habitation, the Canadian Shield has proven highly valuable from an economic perspective. With the third-largest oil deposits after Venezuela and Saudi Arabia, as well as industrial minerals, metals, and lumber, Canada has commodity resources estimated to be worth more than USD 33trn. This commodity treasure is an important driver of the Canadian economy and provides the country a high standard of living. Unsurprisingly, Canada also ranks amongst the top stock exchange centers for mining and energy stocks in the world with more than 550 companies in the extractive sector listed.
In spite of the nation’s massive commodity treasure and steady economic growth, fiscal imprudence by the government has increased its vulnerability to an economic slowdown. Due to Covid-19 fiscal spending, Canada’s public debt load saw a huge increase from 87% of GDP in 2019 to 117% of GDP in 2020, reaching a similar level to Spain’s. In 2021, the public debt load slightly decreased to 112% of GDP. A similar extreme is seen in Canada’s private household debt level, currently at the equivalent of 110% of GDP, largely stemming from mortgages facilitated by low interest rates.
Canadian Government Debt, as % of GDP, Q1/1990-Q3/2021
Source: BIS, Incrementum AG
Canada’s gold mining industry, the fifth largest in the world, is well known amongst gold investors. Home to a multitude of gold mines, Canada produces about 182 tonnes of gold per year. While a lot of the gold is sold internationally via the London Gold Market, Canada is also home to one of the largest mints, the Royal Canadian Mint, established in 1908. Besides coining the national currency, the mint also offers its services to other central banks. Famously, the Royal Canadian Mint’s refinery was the first to achieve .9999 purity, the so-called “four nines”. The Canadian Maple Leaf is amongst the biggest selling investment coins in the world. In 2007 the Royal Canadian Mint was included in the Guinness World Records for producing the largest ever gold coin, weighing 100 kg and of 99.999% purity, a “five nines” coin.
Photo credit: Royal Canadian Mint/ Monnaie Royale Canadienne
Given Canada’s close connections with precious metals, it came as a surprise when the Canadian Central Bank fully emptied its gold vaults in 2016 – it is now the only G7 member without any gold bullion holdings.provided the following explanationThe decision to sell the gold was not tied to a specific gold price, and sales are being conducted over a long period and in a controlled manner”. He continued, “The government has a long-standing policy of diversifying its portfolio by selling physical commodities (such as gold) and instead investing in financial assets that are easily tradable and that have deep markets of buyers and sellers”. However, in 2021 rumors emerged that Canada had added 100 tonnes of gold to their reserves.
Founded only in 1934, in the aftermath of the Great Depression, the Bank of Canada is amongst the younger central banks. However, supported by close ties to its British counterpart, the Bank of Canada quickly gained in importance. Gold played a crucial role. Canada had introduced the gold standard in 1855, long before the Bank of Canada was founded. The Canadian dollar was valued at par with the US dollar and at CAD 4.867 to the British sovereign. During World War I, Canada abandoned the gold standard and returned to gold redeemability only temporarily between 1926 and 1931, before banning gold exports in October 1931 and suspending the redemption of Dominion notes in gold in April 1933.
Nevertheless, the government’s interest in gold remained, and in 1936 the idea emerged of Britain acquiring Canadian gold and storing it in Canadian vaults. Increasing the Bank of Canada’s gold trading activities was also meant to strengthen its mandate “to regulate credit and currency in the best interests of the economic life of the nation, to control and protect the external value of the national monetary unit”. When international gold demand saw a huge increase throughout the 1930s, Canada began to tighten regulatory oversight over the gold market. The Royal Canadian Mint became the country’s principal refiner, while the 1932 Gold Export Act required licensing from the finance minister for any export of gold. In other words, the Canadian government had the preemptive right to buy gold, as it had discretion over the provision of export licensing. Only a few years later, financial settlements in gold were outlawed, too. The introduction of the confidential British earmark account – a courtesy function amongst central banks entailing gold deliveries and safekeeping – was a step that became increasingly significant during World War II, providing the fundament for various central banks to store their gold in Canadian vaults.
Canada is a popular place amongst gold investors, given its close ties to the gold industry and the favorable tax status of precious metals investments. Gold, silver and platinum are exempt from taxation in Canada, provided that they meet the required purity level – 99.5% for gold and platinum, 99.9% for silver – and come in the form of a bar, ingot, coin or wafer. Palladium, on the other hand, is subject to the goods and service tax (GST) and/or the harmonized sales tax (HST). Also, all sellers of precious metals are also liable to undertake KYC measures, while FINTRAC reporting requirements apply to cash transactions exceeding CAD 10,000. The Royal Canadian Mint does offer vaulting services to financial institutions – about 10% of Switzerland’s gold holdings are being stored in Canada – as well as to business clients. Other private vaulting services exist, too.
All in all, Canada is an appealing jurisdiction for gold storage, given its strong historical connection to the gold mining industry and its track record of being a stable and peaceful country.
United Kingdom – the World’s Largest Gold Vault
Photo credit: Pixabay
The United Kingdom of Great Britain and Northern Ireland, oftentimes just referred to as the UK or Britain, is a unitary sovereign island state located on the greater part of the British Isles archipelago off the northwestern coast of the European mainland. The largest island within the archipelago is the island of Great Britain, where the UK’s capital, London, is located. The three islands Isle of Man, Guernsey, and Jersey are not part of the UK, but as Crown Dependencies the UK does defend them militarily. Together with the northern part of the island of Ireland and many smaller surrounding islands, the UK totals an area of 242,500 km2. Surrounded by waters, it faces the Atlantic Ocean in the West, the Irish Sea in the northwest and the North Sea in the east. The English Channel, in parts as narrow as 35 km, separates the UK from the European continent. The rugged coastline of the UK, extending over 12,500 kilometers in length, has served as a geographical barrier to a multitude of invasion attempts over the centuries.
The UK consists of four countries: England, Wales, Scotland, and Northern Ireland. The rugged topography of the UK contributed to the emergence of cultural differences among the four countries. A unitary parliamentary democracy and constitutional monarchy, the UK’s current head of state, since 1952, is Queen Elizabeth II. She is also head of the Commonwealth of Nations, consisting of 54 member states and former territories of the British Empire, amongst them Canada and Australia.
Historically, the British Isles have always been a target of interest for invaders. In 55 and 54 BC the Romans, led by Caesar, attempted two invasions, and later southern Britain became part of the Roman Empire. Over the next one thousand years, there was an endless series of invasions from the Europeans: from the Germanic Anglo-Saxons in 400 AD, the Scandinavian Vikings in the 9th century, the Danish crown in the 10th and 11th centuries, the Spaniards in the 16th century, and the French in the 19th century. In other words, Britain’s main geopolitical challenge was defense against invasion, which it sought to accomplish by building a strong naval force and, beyond that, by engaging selectively on the European continent to prevent the emergence of a dominant power.
The Kingdom of Great Britain was only established in 1707, by politically uniting the two kingdoms of England and Scotland under the Treaty of Union. A century later, the Act of Union 1800 merged Great Britain with Ireland, establishing the United Kingdom of Great Britain and Ireland. Throughout those years, Great Britain rose to become the world’s principal naval force and imperial power, establishing the British Empire. Forced into both world wars, the UK emerged victorious, albeit with heavy losses. After the Second World War, the UK became one of the five permanent members of the UN Security Council and had a leading role, together with the US, in establishing the IMF, the World Bank, and NATO. While the postwar 20th century was marked by the economic recovery from the war, most colonies of the British Empire sought independence. Maintaining close ties with its European neighbors, the UK was a founding member of the European Free Trade Association (EFTA), as well as a founding member of the European Union after joining the European Communities in 1972; but the UK resisted joining the monetary union and the Maastricht Treaty. Following a national referendum in 2016, with the majority voting for leaving the European Union, since January 2020 the UK is no longer a member state of the EU.
The birthplace of the Industrial Revolution and once the largest empire in history, Britain today is still amongst the largest powers in the world, exercising significant influence on the international stage. The UK is a recognized nuclear power, has the fifth largest military budget, and maintains a strong presence on the world stage, although not with the power it wielded during the days of the British Empire. In 2021 the British economy was estimated at USD 3.1trn, the 5th largest in the world, while its currency, the British pound, is the fifth largest reserve currency in the world. Often casually referred to as sterling or cable or quid, the Great British pound is the oldest surviving national currency, dating back to the 7th century. Just like all fiat currencies, its purchasing power has declined significantly over the past 14 centuries, but to be fair, all of its historical competitors are marked at zero and are no longer in existence.
The emergence of London as one of the world’s major financial centers played an important role in Britain’s gold history. A port city already back in the 16th and 17th centuries, London rose to be an important trading center, home to the East India Trading Company. The Napoleonic invasion of Amsterdam triggered a further influx of traders who relocated to London, allowing the city to overtake Amsterdam as the most important trading hub. In 1565 the Royal Exchange was founded, and a century later Lloyd’s coffee house in Lombard Street became the birthplace of London’s world-leading insurance market.
Photo credit: wikimedia
In 1694, the Bank of England opened its doors, and the first purpose-built vaults were set up only a couple years later upon high demand, as lots of gold was shipped from Brazil to London in the first gold rush in 1687. In 1750, the London Good Delivery List was introduced, formally recognizing refineries that were allowed to trade on the London gold market. As of today, this list is still the most recognized accreditation in the gold market, although it is now the responsibility of the independent London Bullion Market Association (LBMA). In the vaults of LBMA members currently a record quantity of gold is held, amounting to 9,636 tonnes, which equates to approximately 770,877 gold bars, as well as 35,191 tonnes of silver, which equates to approximately 1,173,049 silver bars.
Reputedly, the Bank of England has the second largest vault in the world after the Federal Reserve in New York. The Bank of England is clearly one of the globe’s largest custodians of gold, both for central banks and institutional customers. As of the beginning of 2022, the amount of gold stored in the vaults of the Bank of England stood at almost 5800 tonnes of gold. In the Bank’s 326-year history no gold has ever been stolen from its vaults.
Each day physical gold worth some USD 60bn is being traded in London, making London the center of global gold trade. The sheer quantity of precious metals stored in the vaults of London underpins the enormous size of the market and secures its liquidity. The UK’s profound and long-lived cultural and financial history, founded on the tenet that precious metals are equal to money, as well as its direct access to the largest gold market in the world, make the UK an excellent location to store gold.
Photo credit: pixabay
Highly interesting, too, for bullion investors are the three British crown dependencies: the Bailiwick of Guernsey, comprising the islands of Alderney, Brecqhou, Guernsey, Herm, Jethou, Lihou, and Sark; the Bailiwick of Jersey, comprising the island of Jersey and uninhabited islets such as Écréhous and Minquiers; and the Isle of Man.[2] They do not form part of the UK but are self-governing possessions of the British Crown for which the UK bears the responsibility of military defense as well as international representation. Unlike the UK they never were members of the European Union but only formed part of the customs union. Approximately 260,000 people live on the various islands of the three crown dependencies. Their legislative independence from the UK is unique, as is the fact that both the Bailiwick of Guernsey and the Bailiwick of Jersey consist of several jurisdictions.
With a history dating back more than 1000 years, these islands have a long track record of a stable legal and political system. Above all, their local governance approach allowed for the decision making to focus on the best interests of the islands. On those grounds, the exceptional combination of legal and political stability plus financial innovation emerged, letting Jersey and Guernsey rise to being favored offshore financial jurisdictions.
An obvious example of this approach is each island’s independence to establish its own tax scheme. On Guernsey, for example, there is a flat income tax of 20% with a liability cap, while no capital gains, inheritance, capital transfer, or value added taxes are levied. Similarly, the jurisdiction of Jersey also applies a 0% default tax rate for corporations, with exceptions for financial and utilities companies. Propelling the islands’ reputation as tax havens was a now-closed European VAT tax loophole known as low value consignment relief (LVCR), which allowed for VAT-free importing of goods valued at less than 22 EUR. The absence of any form of value added tax or goods and sales tax has helped to create a very interesting bullion storage location, especially as some bullion investments are also exempt from the UK capital gains tax.
Unlike many other offshore jurisdictions, Jersey, Guernsey, and the Isle of Man have a long track record of professionalism, financial prudence, and compliance with international standards. All three crown dependencies are committed to improving transparency and establishing an effective exchange of information in tax matters. Give their secure but innovative environment, these unique islands have earned the appellation “British Switzerland by the Sea”.
Guernsey alone is home to more than 1,400 investment entities, 30 international banks, more than 850 insurance firms, and over 150 investment funds, with a total of more than GBP 270bn under management. Less known is the fact that Guernsey has its own stock exchange, TISE, listing more than 3,500 securities with a market capitalization of more than GBP 500bn. Big names listed include Netflix and Refinitiv.
All in all, the UK including the Channel Islands offers a great proposition to any gold investor looking for a safe gold storage location.
Conclusion – Weighing Risks
The single most important step in selecting a gold storage location is to thoroughly examine and critically evaluate existing market risks. While geopolitical factors and jurisdictional peculiarities play a significant role, the final determinant is usually the investor’s personal situation and preferences. Certainly, all three jurisdictions we have covered can make a strong case for providing a secure gold storage solution. Germany scores high with its stable political-economic environment; Canada can make its case with its large gold industry and proximity to the US market; while the UK has by far the longest history with gold and provides unique access to the most liquid and transparent precious metals market.
[1] See “Gold Storage: Fact Checking Austria, the USA, and the Cayman Islands,” In Gold We Trust report 2021, “Gold Storage – Fact Checking New Zealand, Australia, and Dubai,” In Gold We Trust report 2020, “Gold Storage: Fact Checking Liechtenstein, Switzerland, and Singapore,” In Gold We Trust report 2019
[2] Many thanks to Swen Lorenz from Sarnia Asset Management for the detailed insights.
