Gold Storage: Banks vs. Non-Bank Safe-Keeping

Storing your Gold Investment securely means employing the right custodian...

WHEN YOU COME to Buy Gold, where do you store it? asks Commodity Online in Mumbai.

This is a question that many Indians – the world's largest buyers of physical gold – must ask themselves. The issue of bank safe-keeping or professional non-bank custody deserves attention.

Indian women – if you go by a traditional Bollywood masala movie – are smarter than their counterparts in the western world. They do all sorts of tricks to hide their gold, not only from pranksters and robbers but also from the prying eyes of their husbands.

The script so often seems to revolve around a husband who needs gold – to sell off for hard cash to fulfill his entertainment needs, liquor or mistresses. And to avoid this, rural women choose to store gold in their grain boxes, wrap up in clothes, in vessels and at other innovative locations where suspicious eyes cannot reach.

If the men are co-operative, they help them safely keep it in electrical switch boards or other screw bound vaults – not safe by their own village standards. But the aim is to deceive the thief.

But thieves are smarter now. To counter their smartness is a tough task. So urban women, instead, use bank vaults for safe-keeping. But are these methods the best way to store larger quantities of Gold Investment, a fast-growing problem for India's growing middle-classes today?

Items stored inside India's vaults – mostly in banks – can often be handled by inexperienced hands. "Yes the banks are very good in managing vaults. But they are not good in managing what we keep inside these vaults," says Raj Kaushal, a retired teacher who had to fight getting a few ounces of gold which he kept in a bank vault – also known as locker – and lost.

The bank in question did repay the value of his lost gold, but he had to meet top officials and a lot of correspondence to get his due.

He agrees with the BullionVault philosophy that there should be clear standards for safeguarding each commodity. Firms dealing in gold should be separated from businesses based on, or related to, the creation and sale of financial or credit products. Storage firms must also be experienced in managing bullion, must have multiple international vaults under their management, and must be competent to undertake international shipments of gold.

"Neither of these are a bank's core business," says Makrand Patil, a banker in Baroda. "Lockers in banks are just a value added service at a small cost. Banks don't exist to manage what is inside those lockers. We just safeguard them irrespective of whether you keep gold or just a match box inside."

"You cannot ask a warehouse manager safeguarding wheat and rice to safeguard gold and not vice versa. Expertise is very much necessary," Kaushal argues.