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Citibank initiative; credit cards buy gold, silver

Mike Botta

NEW YORK--Citibank has begun offering its precious metals investors an option to charge gold and silver purchases on Visa and MasterCard, according to Jeffrey Volk, vice-president of Citibank.

The credit-card program is reputed to be the first although other banks have considered this sale method.

Citibank began informing investors of the option during the last two weeks, Volk said at American Metal Market's Gold Forum yesterday, but at the moment the bank has no formal plans to use mass advertising to promote the program.

Volk said the option is merely an extension of Citibank's present activity in offering precious metals to customers. He said the same limits that apply to non-credit purchases will apply to the credit-card option.

Citibank limits customers to a minimum $1,000 purchase, a maximum $5,000 purchase, Volk said.

"The program will open precious metal investment to many more Americans," Volk said. The banker was one of three panelist who discussed emerging trends in gold certificate yester.

Another panelist, Frederic Wasserspring, first vice-president, metals department, Prudential-Bache Securities Inc., said some questions exist over the legality of credit card use for precious metals purchases because of leveraging posibilities.

"We looked into credit cards and our lawyers said tey felt it was illegal," Wasserspring said during a question-and-answer period.

Profitable leveraging actions are generally considered to occur when borrowed funds are used to increase a realized rate of return on a cash investment where that rate of return is higher than the cost of the money borrowed.

On a credit card the amount charged does not have to be repaid in full on a due date. For instance, if $1,000 worth of gold is bought using the card, that purchase could be paid off at a rate of only a few dollars a month.

Certificate gold and silver orders charged to MasterCard and Visa may be placed by customers through the bank's New York phone number, Voilk said. The bank also has established a toll-free telephone number for the credit card users.

Citibank has had a program for several years whereby gold could be purchased and held by the bank with the buyer given a certificate in lieu of the physical gold.

Volk said any Visa or MasterCard is being honored under the program, not only those issud by Citibank.

American Express, Diners Club, or other charge cards are not being honored for the purchase of the Citibank gold and silver.

Platinum, palladium, and other strategic metals are not included in the Citibank program.

Also included in the panel discussion on gold certificates was R. Leslie Deak, executive vice-president of Deak-Perera Group.

Deak said his firm's certificate programs now account for better than 50 percent of its gold investment business, as compared with physical precious metals business.

Deak said certificate activity in general has become more active since 1979-80 when shortages of physical metals developed.

Wasserspring said the growth of certificate programs at Prudential-Bache and other large, reputable firms is aimed at providing security, protection and convenience to the buying public.

He said that he has noted that advertisements in recent years have offered gold at wholesale and spot prices, and a large segment of the buying public has fallen for bogus offers.

He estimated the public was bolked of between $70-million and $100-million through bogus gold offerings.

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