Precious metal storage companies (cash to commodoty conversion).. how do they profit? economists?

Question

In other words, If I buy gold with my dollars and the value of gold goes up, then when I sell the gold back to the storage company (from what I understand they buy the gold back from you to allow you to cash out) and they pay me more dollars for the same quantity of gold I purchased, can they ever end up losing money/value?

Or is there some fundamental economic law that governs this type of business that inoculates them from loss?

Is there some natural economic limit of currency appreciation in relation to commodities such as gold?

Is the working mechanism behind these storage companies the fact that they always end up with the gold AND get to charge fees on storing it, *and*, per some economic law (or limit on currency appreciation), will always be winners in the long run?

Will be very grateful for someone with the knowledge to answer this question. thanks in advance!

Answer 1

I always take personal delivery of my gold and silver. I dont use storage facilities...at least not yet. I will in the future. But I want a core gold and silver holding in my ssfe at home.

When using a stroage outfit they store the gold and silver for you. This was the original role of banks prior to the invention of fractional reserve banking. The storage banks would keep your gold and silver and would issuse you a reciept for your holding. That reciept became the first bank notes and later currency. Banks when first created as storage outlets always charged a fee to store your gold and silver. It was when fractional reserve banking was invented that banks started paying interest on your gold deposits. Basically the banks would lend out your gold to someone else and pay you interest while making a profit for the bank by lending. This inceased the money supply as now 2 people would lay claim to the gold in the banks reserve. When banks would over lend that would cause a run on the bank and depleting the reserves. Usually it was first come first serve on the reserves.

Today the storage companies act as a true reserve storage outlet. They DO NOT LEND OUT YOUR GOLD AND SILVER. You retain full title to it as you are paying the storage fee. You will not earn interest. Your gold and silver grows in value as a result of the debasing of the currency. These storage outlets make money in 2 ways. 1 by charging the storage fee and 2 by charging an upfront sales charge on the gold and silver itself. The more they sell the more they make. Basically just like a loaded mutual fund.

These storage outlets are fully insured for all holdings. Thats part of the fee you pay. The storage outlet will buy back your silver and gold and put cash in your account or in some cases the gold title will be transfered to another within the same outfit. Gold and silver in this mannor act as exchange houses.

To learn more about the historic role of storage outlets and banking in general get a copy of

The Creature From Jekyll Island -

A Second Look at The Federal Reserve

by G. Edward Griffin

http://www.realityzone.com/crfrjeiss.htm...

This book will explain the entire history of banking and how and where "money" comes from.