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Special Report: P2P Gold and Silver Lending

 

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I am about to tell you about one of the most exciting innovations in the precious metals world in a long time.

As an owner of precious metals, it has long frustrated me that I am not able to use my metals as collateral to borrow against.  It seems to me to be the best form of security around, and therefore, should get a very low interest rate. Interest rate being inversely proportional to risk.

Well our good friends at Silver Bullion in Singapore have provided an incredibly well put together solution to this very problem.

An introduction and interview with Silver Bullions CEO Gregor Gregerson is available in the storage section, but lets just recap why Silver Bullion (SB) is the gold standard of Storage services in the world.

SB is located in Singapore. I believe hands down the best storage jurisdiction in Asia and possibly the world. Singapore has a strong history of defense of property rights and as a financial Mecca of Asia it would be extremely unwise to mess with their reputation as reliable on that front.

SB is completely disintermediated from the financial regulatory body of Singapore and the worlds banking regulations. They do this by only storing metals for you that belong to you. They will not hold metals on their balance sheet for you. Every parcel is branded with a serial code and fully associated with your identity so it stays on your balance sheet.

All metals at SB are fully insured by some of the best insurance programs around. You may not know this but many vaults claims they are fully insured but there is a big gap in their insurance policy that you can drive a truck through. The term is called “mysterious disappearance.”

If a robber blows a hole in the wall of the vault and steals the gold most insurance companies will cover that.  But if during an audit it is determined that some gold is missing and there is no knowledge of how it went missing, then most insurance policies at most vaults call this “mysterious disappearance” and it is not covered.  At SB it is. If any metal is missing the insurance company is on the hook.

So that is just a quick catch up of why I like SB so much to buy and store my metals.

Now to the exciting bit.

P2P Lending.

Since every parcel in SB is identified with a bar code and held uniquely, it allows for an interesting program.  SB can facilitate a loan from someone wanting to lend cash for a return and someone wanting to borrow cash and use their metal as security.

Here is how it works.

Lets say I have $100,000 worth of precious metals stored at SB. They will allow me to borrow $50,000 if I put up the $100,000 worth of metal as security.

This means that the metal is still exactly where I left it. At SB’s vault in Singapore. The place I trusted to store it in the first place.  I am still the owner of the metal and am fully exposed to the price of physical bullion. There is a lien against my metal for $50,000 in the name of the lender.

Under normal circumstances, I simply make an interest payment each month to my borrower to keep my account in order and at the end of the term – 6, 12 or 24 months depending on the agreement – I pay back the principle and the lien is removed.

Now lets look at all the not so normal circumstances.

1. Margin Call 

This occurs when the value of the metal is falling and approaches the value of the lien. So in the above example when the loan is made there is $100,000 security underwriting the $50,000 loan. That is 200% security.

After the loan is made if the value of the metal falls to $62,500 (125%) of the loan amount then the borrower will receive a letter. The letter will state that if  the value of the metal falls to $55,000 in value or 110% of the loan amount then my metal will be liquidated and the loan fully repaid on my behalf. Any remaining funds will be returned to me.

2. Failure to pay interest payments. 

In order to make the cash flow reliable for the lender SB maintains a reserve fund to pay the interest payments on behalf on the borrower should they miss a payment. This cost and penalties are passed onto the borrower who must remedy the shortfall or the metals will be liquidated.

Is it possible for the lender to lose money?

The answer is yes albeit unlikely in my opinion. All investments carry risk and in fact all non-investments carry risk as well. Non-invested money can be stolen from under your mattress or inflated away by governments. Having said that, I believe the following potential risks are about as low as anything else I  can imagine. 

Here are the potential losses I see, but you should not consider this an exhaustive list. Rather these are just the potentials that I can see and there may indeed be more. Please do your own research.

1. Freefalling metal prices. In order to lose money the value of the metal would have to drop more than 10% in value in a time when SB could not sell the metals. It would also have to happen at a time when the value of the metals you have a lien against is worth only 110% (or near there) of value of the loan.

For example if you made a loan today and the value of metal dropped by 30% in seconds then you still would not lose any money because of the high reserve ratio. 

2. Theft. Of course you should never say never, but the metals are insured from theft including mysterious disappearance, so if the metals are stolen and the insurance company is insolvent or fails to pay for some reason then losses could be sustained.

3. If SB goes insolvent then liquidators should fulfill all contracts as promised. Remember that the metals are on your balance sheet and not SB’s. However during a liquidation event the services provided by SB may be interrupted and their margin call procedures may be interrupted increasing the likely hood of free falling metal prices causing losses.

Like I said.  Do your own research but in my opinion the risk profile is very low.

So now you know the ins and outs of the product, how has the program been working so far?

At the time of writing this report the pilot program has been in operation for 2 months. Hundreds of thousands of dollars have successfully borrowed in the program. The interest rates for all loans to my knowledge have been between 4-6% p.a. In my opinion for such a low risk profile I think that is an outstanding return and especially when compared to leaving your money in a risky bank for near zero percent return, I think it is a no brainer.

After Cyprus and Greece banking collapses the world was reminded of just how unsafe banks can be. Considering how low the interest rates were in those countries anyway, lending against precious metals at SB becomes a very attractive option. Consider the trillions of dollars in bank accounts around the world, exposed to risky banks with razor thin margins of liquidity for poultry 0.25% interest, or worse still, negative interest.

I think an entire industry is about to open up.  At present the volumes are not there for institutional investors to step in but for the savvy individual investor who wants to earn 5% interest with minimal risk this is an outstanding option.

There is a fantastic opportunity for people who know about this product to educate others.  Chances are you know someone who has $20,000 or more in a CD account at a risky bank earning pitiful interest.  What would it be worth to that person to hear about this opportunity?  But think much bigger than that. The opportunity is there to do presentations both in person and online.  It can be done in every country in the world and in every language? There is a huge opportunity here and it is limited only by your imagination.

But there is also a great opportunity on the other side of the fence. We live in a time of rapid monetary expansion, and that means rising asset prices. Precious metals are a great hedge against currency devaluation and as you know I recommend holding as much as you can.  But if you can borrow against it at 5% and then purchase real estate or other investments for example that are returning more than that in capital and cash flow appreciation combined, then why wouldn’t you?

In fact there are a number of government guaranteed investment products out there. In many US states there are Property tax lien sales that guarantee investors 15% returns and higher. You can buy them online from your home.   It is a simple matter of borrowing the money at 5% through SB’s peer to peer lending program and investing it in government guaranteed property tax lien sales for a profit.

You were holding the precious metals anyway.  Why not? It is an easy way to generate cash flow from your metals.

Whether you use this information for yourself or sell it to others this is really one of the most exciting products I have come across in a long time.

In this chaotic world of fiat currency, zero and negative interest rates and manipulated markets, it is a shining beacon of truth and value for both parties involved.

People in possession of the knowledge I just gave you are in a position to provide incredible value to literally hundreds of millions of people worldwide. From people with money sitting in risky banks earning no interest to every person with physical gold and silver.

How are you going to monetize your new found knowledge?

I will see you soon.

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