A 400-ounce bar of gold goes for nearly $650,000 in today’s market. Do you want its safety in your portfolio? (Image credit: AFP via @daylife)

The following story appears in the June 25, 2012 Investment Guide Issue of Forbes magazine.

On a rainy afternoon in Inwood, N.Y. Savneet Singh, 28, president of Gold Bullion International. steps out of a black town car and walks into the entrance of a 10,000-square-foot brown warehouse.

There are no signs on the door, so if not for the barbwire fence encircling the building and an armored car in the parking lot you might never know the site houses several vaults holding hundreds of millions of dollars in gold, silver, palladium and platinum.

This vault is one of three in the New York City area leased by Singh’s GBI, a startup trying to make buying and storing gold and other precious metals easy for anyone with $10,000 to invest.

Inside the vault, accompanied by an armed guard, Singh takes a 100-ounce bar of gold shaped like a Nestl Crunch bar (but worth $160,000) and hands it to an associate. “I always love doing this,” he says. “Even a caveman would know that this is worth something.”

From its Manhattan headquarters, three-year-old GBI aims to bring liquidity and transparency to a market where buying and selling, by the small investors, are dominated by “Cash for Gold” merchants and sketchy coin dealers. GBI is not a broker-dealer, nor is it a bank, but like other startups it is using technology to disrupt an inefficient niche in financial services.

GBI is essentially an exchange for gold, silver, platinum and palladium. It says it wants to hack away at the hefty premium investors often pay above spot prices. This can amount to between 5% and 10% for gold.

Purchasers of gold coins or bars who use GBI get the benefit of having their precious metals held in their own name rather than anonymously through a brokerage firm.

Its exchange platform can now be accessed by some 20,000 financial advisors, including those added in a new deal with Merrill Lynch. Purchases of gold through Merrill are subject to a 1% GBI transaction fee and a 1% Merrill commission for purchases under $150,000.

For those without broker access, GBI will take orders directly by telephone and eventually online via HardAssetsAlliance.com. Say you want to invest $100,000 in 1-ounce U.S. Gold Eagle coins. Your order is, essentially, crowdsourced to various established dealers. The platform currently sends the order to 14 suppliers. Once your order is transmitted you see only the lowest bid from five vault locations: New York City, Salt Lake City. Zurich, London and Melbourne. In such an ordinary investment you can expect to pay as high as 1.5% in transaction fees to GBI. After purchasing you have the option to store your physical gold in a Brinks or Via Mat vault or to take delivery of it. Vaulting fees run as much as 0.5% to 0.65% a year. After your order is confirmed the gold is allocated in your name, and GBI provides you with the serial number, refiner and purity of each piece of metal you own. You also get monthly statements.