Due Diligence Report. Physical Gold Ltd PHYSICAL GOLD LTD. GOLD INVESTMENT OPPORTUNITIES

Transcription

1 Due Diligence Report Physical Gold Ltd. 2013

2 Introduction PGL are offering investors the opportunity to purchase and own physical gold, there is no pooling of assets and investors will receive proof of ownership or take personal delivery of their gold. The intention of this document is to provide a true and honest review of an investment into physical gold and to support your own research and due diligence. It does not make or imply any recommendation regarding the suitability of this investment and does not constitute investment advice. Investors should be aware of and satisfy themselves with the risks associated with this investment: Physical Gold Limited (PGL) are not a regulated company and this is not a regulated investment Investors will not have recourse to the Financial Ombudsman Service (FOS) or the Financial Services Compensation Scheme (FSCS) Gold is a very volatile asset and its value can rise and fall in a very short space of time You may not receive back all of the money which you invest Past performance is not necessarily a guide to future performance The risks and legal status of this investment are examined in greater detail later in this document. The information provided in this document is accurate and correct as of 25th February 2013 and will be updated on a timely basis. 1. Physical Gold Limited (PGL) Physical Gold Limited (PGL) is a UK registered gold broker established in They are a member of the British Numismatic Trade Association (BNTA), the National Association of Pension Funds (NAPF), an approved distributor for the Royal Mint and are listed in the World Gold Council s Where to buy directory. PGL earn their revenue buying gold wholesale (in bulk) and selling it on to retail customers for a small margin. PGL employ a team of specialist gold consultants and their business model is built upon lasting relationships with their clients PGL are a buyer as well as a seller of gold so can provide an end to end solution for clients. Trade memberships and links: British Numismatic Trade Association ( Institute of Financial Planners ( National Association of Pension Funds ( Authorised distributor for the UK Royal Mint ( World Gold Council s Where to buy directory ( Partners Daniel Fisher Daniel has over 15 years experience in the banking world, primarily running money market trading with Merrill Lynch. Daniel is a qualified advisor and a member of the Institute of Financial Planners (IFP). Jonathon Rose Jonathon is CEO of Capital Gold Group in the United States. This company has been operating since Jonathon is also a qualified advisor and is a Registered Financial Consultant and member of the International Association of Registered Consultants in the United States. Registered Address and Company Details Registration Details: Physical Gold Limited (Registered in England and Wales No ) Registered Address: Tower 42, 7th Floor, 25 Old Broad Street, London, EC2N 1HN Please follow this link to an interview with Daniel Fisher, the CEO of Physical Gold Limited:

3 2. The Investment Proposition PGL help investors diversify their portfolios with innovative investment solutions. They have a service based proposition, aiming to listen to client s requirements and offer them a gold investment solution that meets their needs. This includes: SIPP acceptable gold with a 3rd party storage solution Small denomination bars and coins Tax free UK coins such as Britannias and Sovereigns Foreign and specialist coins Large good delivery bars Regular saving plans All gold PGL source is investment grade, meaning that it s at least 22 Karat (91.7% pure) for coins and 24 Karat (99.5% pure) for bars and investors are provided a Certificate of Authenticity to evidence this. PGL welcome both cash and SIPP investors. Cash investments start at around 300 and SIPP investments at 5,000. SIPP investors must have the gold stored by a 3rd party in order to satisfy pension trustee requirements. Cash investors can either take personal possession of the gold or choose to have it stored securely on their behalf. The gold is the investors physical property and they can choose to take personal possession at a later date. 3. Historic Performance of Gold Gold was used as money for thousands of years before being replaced with the fiat money in everyday circulation today. Gold has always had purchasing power, it can fluctuate in price and can be bought and sold in pretty much any currency. The most commonly used benchmark for the gold price is the London gold fixing which is captured twice a day in US Dollars and regularly quoted online or in the financial press. Gold has performed extremely strongly over the last decade. Over a ten year period to January 2013, an investor would have achieved a gross return of over 400%, with an annualised rate of return of approximately 17% based on the current spot price. Spot gold price in USD $2,000 $1,800 $1,600 $1,400 $1,200 $1,000 $800 $600 $400 $200 Source: World Gold Council

4 Gold has historically underperformed in US election years and 2012 was no different with politics distracting and masking the true debt burden saw some volatile periods for the gold market but overall the price stayed in a bracket between $1,540 and $1,800 per ounce, finishing the year only marginally higher than it started. Gold did not achieve the gains that a number of well-known commentators were expecting - many had predicted gold to finish the year well over $1,800. Spot gold price in USD $1,820 $1,790 $1,760 $1,730 $1,700 $1,670 $1,640 $1,610 $1,580 $1,550 Source: World Gold Council $1, Mar May Jul Sep Nov 12 Looking back further in time gold has experienced periods of volatility with steep gains and losses. It has also experienced sustained periods of growth similar to what has happened over the last 10 years, with the period from 1970 to 1980 a particularly good example. Spot gold price in USD $700 $630 $560 $490 $420 $350 $280 $210 $140 $70 $ Source: World Gold Council Gold as an Investment In the perfect scenario, an investor will make money on gold if they can buy when the price is low and sell when the price is high. This sounds simple, but gold is a volatile asset and it is very hard to predict what will happen to the price in the future. For investors, their gross return on investment is determined by the price they can purchase the gold at and the price they can then sell the gold at. Investors must also account for any costs of storage, insurance or delivery in order to calculate a net return i.e. their return after all costs have been taken into account. Gold can be an affective investment if used correctly as part of a well-diversified investment portfolio. Historically when assets such as equities, bonds and property decline in value, investors often move their money into gold as a secure store of wealth or safe haven. Therefore in times of high uncertainty, gold usually increases in value. Gold is often thought of as portfolio insurance as it can offset losses in other assets and lower the overall volatility of an investment portfolio. Gold has an intrinsic value meaning it should always have a worth and can provide insurance against currency depreciation and high inflation. If governments print (create) a lot of money, then that naturally devalues the worth of that money and its purchasing power declines. Similarly, if access to credit is cheap (interest rates are low) and people are keen to spend, this can create high inflation and the purchasing power of money declines. Because gold is a physical asset with a finite supply, nobody can suddenly create more and devalue it. For these reasons gold is a strong asset to hold if governments start printing money. The Quantitative Easing programmes recently implemented in the UK, USA and Japan are all essentially forms of money printing.

5 5. Options for Investors Retail investors can gain exposure to gold by purchasing physical gold bullion, buying shares in an exchange traded fund (ETF), a traditional gold fund or gold mining company, or riskier option such as spread betting, futures or contracts for difference (CFD). Advantages Disadvantages Physical gold ETF Gold Fund Gold Mining company No counterparty risk, tangible asset, has an intrinsic value, VAT exempt, UK coins are CGT free Relatively cheap, fast and easy to buy and sell, could smooth downside volatility as not all assets are invested in physical gold Well established, easy to access, well regulated, could smooth downside volatility as not all assets are invested in physical gold Potential of higher gains than the price of gold, may pay annual dividends Relatively expensive premium at purchase, delivery, on-going storage, insurance Counterparty risk, may not be fully physically backed, hard to take personal delivery of gold, gains and losses could be larger than changes to the gold price, annual management charges Counterparty risk, hard to take personal delivery of gold, gains and losses could be larger than changes to the gold price, annual management charges, usually invests in other assets than just direct gold Counterparty risk, potentially high risk, returns may rely on new gold mines coming online which may take a long time Spread Betting Potential of very high gains Speculative, can be very complicated and high risk, could lose more than originally invested Futures Potential of very high gains Speculative, can be very complicated and high risk, could lose more than originally invested CFD Potential of very high gains Speculative, can be very complicated and high risk, could lose more than originally invested Buying shares in an exchange traded fund (ETF), a traditional gold fund, gold mining company, spread betting, futures or contracts for difference (CFD), whilst giving investors exposure to gold, all carry additional risks. This undermines the very reasons for owning gold as a crisis hedge or as portfolio insurance in the first place. These instruments are more suited to short-term speculation rather than longterm stability. 6. Physical Gold as an Investment For many people the objective of an investment in gold is portfolio insurance, holding something that is not correlated to more commonly held assets. Physical gold fulfills that objective as it holds intrinsic value as a precious metal and its value can never be zero. There is no counterparty risk, no liquidity risk and no management charges. It is a simple and transparent way of owning a safe haven asset. In addition, purchases and sales of physical gold do not incur VAT, stamp duty or Income Tax in the UK. The purchase and sale of gold coins that are legal tender in the UK do not incur Capital Gains Tax. Owning physical gold can be a tax efficient way of investing in gold in the UK and EU due to the EU Gold Directive (2000). Investors should be aware that owning physical gold is a relatively expensive way of getting exposure to the asset as investors must account for the premium they pay to the gold brokers and wholesalers and the costs of storage, delivery and insurance. Investors with a short-term investment horizon may well be better off looking into cheaper ways of having exposure to the asset, such as those suggested above. 7. Purchase Process Gold Price The price of gold changes on a daily basis the spot price is recorded twice a day, once in the morning and once in the afternoon, by the London Bullion Market Association. This price can be checked through the World Gold Council Website ( LBMA (www. lbma.org.uk/pages/index.cfm) or printed on a daily basis in the financial press. Purchase Process There are separate one page investment instructions to complete for cash and SIPP purchases, investors must include their personal details and indicate the amount they want to invest. Cash investors indicate on the form if they want to invest in either bars or coins and if they want to have the gold stored or delivered. Once PGL have received the completed investment instruction and the investment funds have cleared, they will purchase the gold on the client s behalf.

6 PGL will purchase to the nearest whole number of bars or coins and refund any difference between the purchase amount and the investment amount to the client. For example, if the investor has sent PGL 10,000 and on the day the funds clear the price of gold bars is 900 a bar PGL will invest 9,900 on the client s behalf and purchase 11 gold bars, and refund 100 back to the client. This is to account for the daily changes in the price and to avoid trying to purchase a portion of a bar. 8. Costs or Deductions There is an initial delivery cost of between 8 and 15 which applies to all gold purchases, both stored or delivered to the client. This covers fully insured delivery from PGL to the storage facility (Via Mat) or directly to the client. PGL will take this delivery charge from money left over from the initial investment. The on-going costs of investing in physical gold are storage and insurance. If the investor chooses to have PGL arrange storage, the cost is 1% of the value of the gold per annum. These percentage costs are fixed for the term of the investment and include insurance. The minimum storage amount is gold valued at 5,000 and the minimum storage period is 6 months. The storage charge is paid up front, 6 months in advance, for both pension and non-pension gold. There will be an arrangement between the SIPP provider and the investor to pass these charges on. If the investor takes possession of their gold then they must consider their own storage and insurance arrangements. There are no other on-going costs or deductions when investing in physical gold. 9. Payment PGL accept either bank transfers or cheques. Investors need to be aware that the price of gold will only be secured when funds clear with PGL. Same day internet or bank transfers will secure the price of gold when funds clear with PGL. A cheque will secure the price only once it clears with PGL. PGL cannot unfortunately accept debit or credit cards, due to the high transaction charges and to protect themselves from fraud. 10. Anti-Money Laundering Process (AML) These AML procedures do not apply to SIPP investors as this will already have been conducted by the SIPP Trustee. Two forms of identification are required if a client makes a single investment of 5,000 or more or if a client invests a total of 10,000 or more within one twelve month period. One piece of identification needs to be a picture (driving licence or passport) The other needs to be an address (utility bill or bank statement that is less than three months old) The documents need to be original, which are photocopied and returned by PGL. Copies of the original documents that have been certified by a GP, accountant, civil servant, teacher, solicitor, notary, employer or post office are also acceptable. 11. Legal Considerations and Ownership The physical gold is owned by the investor and they will be provided with legal documentation to evidence their ownership. This will include a Statement of Account, Contract and Certificate of Authenticity. Investors can choose to either take possession of the gold themselves or have it securely stored on their behalf. If they take possession of their gold, once they have signed to say they have received it, it is their responsibility and they must arrange secure storage and insurance for their gold. If PGL arrange storage on their behalf, the investor will be provided with a legal Storage Agreement stating the amount and type of gold and the location it is kept. PGL currently arrange storage with a company called Via Mat International and the gold is stored on a fully allocated, segregated basis. The investor can choose to take possession of their gold at a later date.

7 12. Storage of Gold SIPP investors must have their gold stored by a 3rd party to satisfy pension trustee requirements, which don t allow investors any personal gain or use of the asset. Banks are traditionally seen as the obvious choice for storage of gold and investors may want to enquire about using a safety deposit box, but not all banks offer this facility and they may have quite high charges. A number of independent companies offer secure, insured storage of bullion for an annual charge of between 1% and 2% of its total value. This is usually in a bonded warehouse with extremely high security measures, which may also be used to store precious items such as pieces of art and fine wines. Access to the facility may be granted to investors to see their gold, the usual process being a written request to the storage provider in advance of the visit. PGL arrange storage with a company called Via Mat International, an independent secure storage company with facilities in Europe, North and South America and Asia. Via Mat have been a supplier of storage and logistics solutions since the 1940s and are one of only a handful of companies in the UK accredited by the London Bullion Market Association (LBMA) to securely store gold billion. Via Mat have extremely high security measures and externally underwritten insurance on all assets within their custody. Via Mat can insure the gold at a much lower cost than an investor can in their own possession. The gold is stored on a fully allocated, segregated basis. The charge for investors is an annual fee of 1% of the value of the gold held. 13. Exit Gold is very liquid and can be sold extremely easily at any time. PGL are a buyer as well as a seller and guarantee to buy gold back off investors at a very competitive price. The majority of customers who enquire sell their gold back to PGL. All of the gold PGL sells is investment grade and can be sold through any chosen broker worldwide. Investors should consider the current price of gold and any associated costs when determining the optimum time to exit. 14. Risks The investment is not regulated by the FSA and there is no recourse to the FOS or FSCS Gold is a volatile asset and the price can move sharply up or down in a short space of time You may not receive back all of the money which you invest Past performance is not necessarily a guide to future performance 15. SIPP Compliance This investment is SIPP compliant and a number of leading SIPP Providers have formally accepted it. To satisfy pension trustee requirements investors must have the gold stored on their behalf and they must invest in investment grade gold bars (not less than 99.5% pure gold) gold coins are not permitted. Gold is a physical asset that can be bought and sold openly, investors cannot take personal benefit from gold held within a SIPP. 16. FSA Status Investors should be aware that this is a Non-Regulated Investment. Non-Regulated Investments are direct investments into assets which are not regulated by the Financial Services Authority (FSA). In practice this means that neither the investment itself, or the product provider are scrutinised by the FSA and investors will not be able to complain to the Financial Ombudsman Service (FOS) and will not benefit from the protections available through the Financial Services Compensation Scheme (FSCS).

8 DISCLAIMER This information is to help support your own due diligence procedures. We believe the following information offers a true and fair view on this investment opportunity at the time of publishing. However, we do recommend that you undertake an independent review of the investment to satisfy yourself of the timely veracity of the data. We do not make or imply any recommendation regarding the suitability of this investment opportunity