The interest in precious metals has grown over the past few years, along with their prices. Demand has risen as central banks, national governments, mutual funds and other investors have bought metals as a hedge against inflation, civil unrest, wars and natural disasters. Some also view gold as insurance against fiat currencies that are backed by nothing more than faith in a country's financial system. As countries like the U.S. have printed money to combat economic problems and deflation, this has driven more interest and investment in precious metals.
Two of the disadvantages of metals are that they provide no income stream and require secure storage. A new dividend program soon to be launched by Gold Bullion International (GBI) will make the metals more attractive as a portfolio asset.
The GBI Physical Dividend Program will provide for payment of dividends in precious metals rather than currency. The service will be available to all publicly-traded companies that pay regular dividends. GBI is a leading precious metals supplier with vaults in London, Zurich, New York and Salt Lake City. Its large client base includes institutional asset managers and wealth managers worldwide.
GBI's proprietary program will allow shareholders to customize their dividend payments based on their desired allocation of gold, silver or a combination of both. Once the conversion has occurred, shareholders have the option of taking physical possession, storing in GBI's insured vaults or shipping to a vault of their choice. There's a fee for storage in secure vaults.
Once enrolled in the program, shareholders must select their gold and silver percentages by 12:00 a.m. EST the day prior to the record date. The price is set at the London spot "fix" on the dividend record date. The London fix prices are widely followed benchmarks that occur when brokers match "buy" and "sell" orders to bring the market into balance. The gold fix is set twice daily, and the afternoon fix used for this program begins at 10 a.m. EST. The silver fix is set once daily beginning at 7 a.m. EST.
Once the conversion from dividend cash value to physical value occurs, the gold and silver distributions are made to shareholder bullion accounts on the dividend pay date. If the monthly dividend is less than the equivalent value of one ounce of gold or silver, the dividends will accrue until a conversion can be made at the chosen allocation percentage.
Gold Resource Corporation (GRC) has announced that it will start participating in the program on April 10, 2012. Shareholders of record will be able to direct their dividends payable on April 23 to be delivered in GRC's one ounce gold or silver Double Eagle rounds. GBI will draw the Double Eagles from GRC's minted treasury and make the physical distributions per shareholder instructions.
Participating shareholders must hold their shares with Computershare, GRC's transfer agent. Shares may be transferred from an existing brokerage account to Computershare via the Direct Registration System. An online individual bullion account is then opened with GBI which will verify share positions of participating shareholders. Shareholders will manage their own accounts online and change their allocations as desired. If they cancel participation in the program, dividends will resume to be paid in cash.
The Bottom Line
GRC is not adding a premium to its minting cost, so its shareholders will only pay the actual production cost, shipping and handling. If shareholders don't take physical possession, they are also responsible for storage costs.
This program can be replicated in other companies that pay cash dividends. It offers an alternative to shareholders who would like the convenience of purchasing precious metals on a regular basis. By using dollar cost averaging to buy metals, they can enjoy the same benefits as other dividend reinvestment programs.
GBI's Physical Dividend Program is fully insured and audited quarterly. If the popularity of the program spreads, it could impact future demand for gold and silver.