When Gov. Greg Abbott signed a bill last month to create the state’s own bullion depository, he prompted national speculation that the state was preparing to launch its own currency and setting the stage for secession. Adding to the intrigue was Abbott’s declaration that the state would “repatriate” $1 billion of gold bullion being stored in New York to Texas.
The actual goals of the depository are far less dramatic than secession, and any movement of gold from New York to Texas is less certain than Abbott originally conveyed. Yet if all goes according to plan, supporters say, the depository could make Texas an international destination for people investing in gold, silver and other precious metals.
“I would like to see this all come together so we become a commodities hub for the continent,” said state Rep. Giovanni Capriglione, R-Southlake, the author of House Bill 483. “I think we’re just perfectly situated.”
The bullion depository is designed to be more than a Texas version of Fort Knox. It will not only store gold and other precious metals but also allow customers, including investors from around the world, to open accounts and potentially pay for transactions with them. Capriglione described it as a bank that doesn’t do any lending.
Yet much of how the depository will actually function remains up in the air. Who will run it? Where will the vault be located? How easy will it be for someone to make a deposit? Those questions and many others are being hashed out by a task force set up by Comptroller Glenn Hegar, whose office is tasked with writing the depository’s regulations and contracting with a private firm to manage it.
“I am committed to providing the people of Texas a safe and secure depository,” Hegar said in a statement. “I take that commitment seriously and intend to approach this undertaking in such a way that creates the trust necessary to ensure that potential depositors sleep well knowing that their hard earned deposits are secure in a Texas facility.”
Capriglione said he’s spoken with companies interested in bidding on the contract to run the depository, including Richmond, Va.-based Brink’s and Addison-based Dillon Gage, which already runs private precious metal depositories in Delaware and Toronto.
“If an opportunity is presented, we’re certainly well-positioned, and Dillon Gage has tremendous expertise in both the trading wholesale side and the depository side,” said Alisa Moen, Dillon Gage’s general counsel.
Once the project is further along, the state’s Department of Banking will begin licensing depository agents to serve as middlemen between the depository and customers. Capriglione expressed hope that a major bank like Chase would become a licensed agent, allowing customers to open up "Texas Gold" accounts, complete with a debit card that would allow them to easily conduct transactions using their bullion investments.
The law also allows for school districts to invest in the depository.
“To me, I think opening up the ability of school districts and others to invest in alternative types of investments makes a lot of sense,” Capriglione said. “Any prudent investor would do that.”
The idea of Texas creating the first state-run bullion depository in the country has been kicked around in Austin for years. A contingent of Republicans, including most prominently former U.S. Rep. Ron Paul, R-Lake Jackson, have long advocated for investing in gold. They've argued that returning to the days when the U.S. dollar was pegged to the gold standard would lead to a more stable economy.
In 2013, Capriglione proposed a bill to establish the state’s bullion depository, drawing the support of then-Gov. Rick Perry. The bill didn’t gain much traction, largely because of estimates that it would cost the state $14 million in just the first two years.
This session, Capriglione rewrote the bill to allow for the state to hire an outside firm to manage it, with the expectation that the firm would charge fees to cover the depository’s costs. With no cost to the state, the bill sailed through the Legislature and landed on Abbott’s desk with little debate.
“The Texas Bullion Depository will become the first state-level facility of its kind in the nation, increasing the security and stability of our gold reserves and keeping taxpayer funds from leaving Texas to pay for fees to store gold in facilities outside our state,” Abbott said in a statement.
The only state entity that currently owns any significant amount of gold is the University of Texas Investment Management Company, which oversees the assets of both the University of Texas and Texas A&M systems. The nonprofit has $660 million worth of gold bullion in storage at the HSBC Bank headquarters in New York City, according to UT System spokeswoman Jenny LaCoste-Caputo.
The bill does not require UTIMCO to move its gold to the state’s depository, but moving the gold to the depository “will be seriously considered” if two conditions are met, LaCoste-Caputo said.
The first condition: The cost of storing the gold at the depository must be cheaper than what UTIMCO currently pays to keep it in New York. Capriglione predicted that Texas would be able to meet that threshold.
The second condition is trickier. The depository must become a full member of the Chicago Mercantile Exchange’s COMEX platform, where gold futures contracts are traded, LaCoste-Caputo said.
It’s unclear if the state even has the authority to get its depository the required licensing The law signed by Abbott specifically forbids the depository from entering into futures transactions. Capriglione said that’s another issue that will have to be worked out.
“The depository will provide an unprecedented amount of liquidity for bullion holders, but I understand at least some holders will also want COMEX involved as well,” Capriglione said.
Another unknown is whether the Texas depository will boost the broader precious metals industry. Michael Fuljenz, president of Beaumont-based Universal Coin & Bullion, said Texas has a reputation that could make it stand out.
“I could see some of the customers I do business with saying I’d like to see it stored in Texas rather than Delaware,” Fuljenz said.
Disclosure: JPMorgan Chase and the Texas A&M University System are corporate sponsors of The Texas Tribune. A complete list of Tribune donors and sponsors can be viewed here.