This week a “bullion related” news item crossed my desk which gave me pause.

A company called Gold Solutions Marketing Inc. (www.TheGoldBullionCard.com),  recently issued a press release announcing their new Gold Backed “credit card”, which will be available soon online. The card, which will be branded by either MasterCard or Visa, is supposed to function like a regular credit card, but will be backed by gold bullion coins you have to deposit into an account. If you don’t currently have any gold, the press release states that you will be able to purchase a quantity of gold. ” below market prices”, at the time of your account opening.

Jeff Silver, VP of Gold Solutions Marketing, Inc. was quoted to say, “Those who ‘believe in gold’ can see  the new (Credit Card reforms of Feb 2010) law reshaping attitudes and conventions about credit cards that will help make this breakthrough collateralized credit card concept a reality in the very near future.  They know that gold, which is a hard asset, can provide a higher level of liquidity and usefulness, while positively impacting the financial picture for millions of Americans” .

Now to be fair, I have to state up front that I am not a big fan of the credit card industry or the big mega banks in particular, and how Congress has allowed, and still allows them to engauge in what many consider to be predatory business practices is a whole different story. But something just didn’t make sense to me in this press release.

First, this is a collateralized credit card, where of the line of credit is backed by an asset you already own.  According to Jeff Silver, the ” credit card [will be] based on 75 percent of the value of gold coins on deposit……, which should give the issuing bank a much more secure feeling about extending credit.”  You Think ?

Now my mother drowned all of her stupid children, but it seems to me that if I have $20,000 in gold bullion coins, in my possession, why on earth would I ship them off to a depository in exchange for a “credit card” with a $15,000 credit limit?

One would think that if you can afford to be holding $20,000 in gold coins for a rainy day that your credit score would be high enough to be able to secure a regular credit card.

My understanding has been that collateralized credit cards have mostly been reserved for either those people who had no credit history, or with poor credit, so the bank required that they have an amount equal to the credit limit on deposit to insure the bank had collateral access in the case of a default. But with the Gold Backed Card you don’t even get  1 to 1 collateralization, you only get 75%.  Doesn’t sound like a great deal to me.

And if, for whatever reason, a person could not secure a regular credit card based on their financial situation or credit history, where are they going to get the cash to purchase gold coins ” below market prices” in the first place?

Plus, what about those infamous “fees” that banks and credit cards now seem to live off of? If you ship off your coins to the credit card’s depository( in this case Delaware Depository Services), aren’t they going to charge a storage fee. I’d bet you that fee will get added into your monthly credit card statement in one form or another.

Also, are your coins stored in a segregated account, or is it fungible storage, where every one’s  coins are placed in a common storage account. If it is not segregated, the coins you sent to the depository may not be the ones you get back if you decide to close your account. And what happens if the credit Card issuer/bank fails or goes bankrupt? Are your deposited coins insured if this happens? Lots of questions, the answers to which are usually buried in the fine print.

Don’t get me wrong, I am a strong proponent of purchasing gold and silver bullion, for dozens of both rational and irrational reasons.  And while I applaud this company for it’s creative marketing ideas,  some of the very reasons I/we purchase gold bullion in the first place is because of a deep mistrust of the financial system. Why on earth would I want to place my gold back into the same system that I am trying to hedge against, and assume that this time around things will work out fine and everyone is going to act in a responsible fiduciary manner.

Thanks, but I think I’ll hold onto my gold and pay cash for all that crap I don’t really need anyway.

Related posts:

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2. Rare Coins Shine Through Credit Crisis
3. Considering a “Gold” IRA? – Choose Wisely
4. Another Gold Rush for Wilmington Depository
5. Gold IRA Accounts Revisited
6. How to make the biggest profits from gold and silver
7. Certified Gold and Authenticated Bullion: Two New Services from NGC
8. Gold is on the move – Take advantage with Gold American Eagles
9. $1 000 Gold Still Very Cheap – Interview with Greg McCoach
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