Wednesday , 22 November 2017


There is a MUCH Better Way to Own Gold Than Via ETFs and ETRs – Here's How

Late last year the Royal Canadian Mint intoduced an Exchange Traded Receipt (ETR) in another long line of paper-gold investments that are now trading on securities exchanges worldwide. It, like all of the other programs, comes with a slew of fees and risks. [Why not take personal physical possession of your gold or silver, store it in an allocated and secure non-government vault, be able to have any or all of it shipped to you immediately upon request – and for dramatically less than any ETF or ETR?  Let me explain how easily it is to do just that.] Words: 1601

So says Chris Horlacher (www.MapleLeafMetals.ca) in edited excerpts from his original article*.  

Lorimer Wilson, editor of www.FinancialArticleSummariesToday.com (A site for sore eyes and inquisitive minds) and www.munKNEE.com (Your Key to Making Money!) has edited ([ ]), abridged (…) and reformatted (some sub-titles and bold/italics emphases) the article below for the sake of clarity and brevity to ensure a fast and easy read. The article’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.

Horlacher goes on to say, in part:

Fees

The number one question investors should ask when participating in ETR’s, or any other kind of proxy gold investment, is “What are the costs?”

The Royal Canadian Mint’s (hereafter referred to as the “Mint”) program [see here] has a number of them that make ETR’s unattractive, as follows:

  1. A 3% agent’s fee which means that for every $100 invested in the ETR $97 is used to purchase gold and $3 is handed over to the banks and brokerages as their commission for making a successful sale.
  2. A 0.35% per annum storage fee which means that for every year you own the ETR, the amount of gold your $100 investment represents is reduced by $0.35. The storage fee bears further scrutiny because of the way it works. Every year, the Mint will sell 0.35% of the gold stored under the ETR program in order to collect the fee. This means that over time, the amount of actual gold each ETR represents will steadily deteriorate. The longer the program operates, the greater the reduction in gold backing behind each ETR. 
  3. A 5% redemption fees if you redeem your ETR for cash.
  4. A $100 redemption fee if you redeem the ETR for physical bullion PLUS
  5. An additional 5% redemption fee if you redeem for 1 oz coins OR
  6. An additional $15/ozt. redemption fee if you redeem for 1 kg (32.1507466 ozt.) bars OR
  7. An additional $1/ozt. redemption fee if you redeem for 400 oz bars (which drops to $0.25/oz after 10,000 oz’s).
[Given the above, the effective expenses related to buying a Mint ETR and then redeeming within 1 year are outlined below: 

  • for cash: 8.2% ($10,000 – 3% – 0.35% – 5% = $817)
  • for 1 ozt coins: 9.1% ($10,000 – 3% – 0.35% – $100 – 5% = $912)
  • for 1 kg bars: 9.2% ($10,000 – 3% – 0.35% – $100 – $482.26 ($15x32.1507466 ozt.))
  • for 400 ozt bars: 8.3% ($10,000 – 3% – 0.35% – $100 – $400 ($1x400ozt.)) 
  • for 3 or more 400 ozt. bars: 5.3% ($10,000 – 3% -0.35% – $100 – $100 ($0.25x400ozt.))]

A comparison of the above fees and costs to those of Maple Leaf Metals Exchange, for example, show them to be very expensive:

  • 1 oz gold coin: 4% (lower for purchases of 10oz or more)  [vs. 9.1%]
  • 1 kg bars : 0.485% equivalent [vs. 9.2%] based on our $8.00/ozt. fee [and gold selling at $1,650/ozt. The higher gold goes the lower our fee becomes on a percentage basis.]
  • 100 ozt. bars: 0.515% equivalent based on our $8.50/ozt. fee [and gold selling at $1,650/ozt. The higher gold goes the lower our fee becomes on a percentage basis.]
  • 400 ozt. bars: 0.333% equivalent [vs. 8.3%] based on our $5.50/ozt fee [and a selling price of $1,650 per troy ounce for gold. As said above, the higher the price of gold goes the lower our fee becomes on a percentage basis].

Redemption Minimums

  • The Mint’s ETR: must redeem a minimum of 10,000 units in order to be eligible to receive physical gold. At an initial offering price of $20/ETR this means that you have to have at least $200,000 invested before you would ever see any physical gold from this program. Anything less is paid out in cash. Other funds are no better.
  • SPDR Gold Trust (GLD): must redeem no less than 9,730 ounces of gold based on the October 26, 2011 London PM Gold Fix – and, like those below, only for “authorized” participants,
  • Claymore Gold Bullion ETF (CGL): 4,484 ounces (based on the October 26, 2011 London PM Gold Fix),
  • iShares COMEX Gold Trust (IAU): 488 ounces ((based on the October 26, 2011 London PM Gold Fix),
  • Sprott Physical Gold Trust (PHYS): 400 ounces of gold.
  • Some funds, like the Central Gold Trust (CEF), don’t let anyone redeem for physical gold at all!

With as little as $1,000 invested with Maple Leaf Metals Exchange we will deliver your precious metals right to your door for a flat fee of $30 plus a 0.75% insurance fee of the subtotal. We ship anywhere in North America via priority or overnight Fedex, UPS, USPS or Canada Post and each discreet package is fully insured by our blanket policy. You will also receive a tracking number with every shipment. If you opt to have Maple Leaf Metals Exchange store your bullion for you, we waive the shipping fee in lieu of a monthly storage fee. As we say, “Simple is good”.

Counterparty Risk

Many ETFs and ETRs, including the Mint’s ETR program, can be terminated at the counterparty’s discretion. At least with the Mint’s ETR if it terminates the program, holders will be given 90 day’s notice and the option of redeeming their ETR’s for gold. Many other programs simply allow the counterparty to declare force-majeure and pay out their unit holders in cash only. The Mint can, however, at their discretion suspend all redemptions of ETR’s for gold, so this, in effect, provides investors with little security that they will receive their gold in the event of severe market events or other issues that may very well arise in the future given the economic climate.

Another big risk that is unique to the Mint’s ETR program is the fact that the Mint is exempt from many of the continuous disclosure requirements that other issuers on the TSX are subject to. This is a clear double-standard created by the Government, giving the Mint special treatment and shielding from securities regulators. The exemption makes it much harder for investors to get any information about the ongoing operations and financial condition of the Mint. In the event of insolvency, unallocated gold holders are generally the last to be paid in a bankruptcy since they are listed as unsecured creditors

Furthermore, the gold in the Mint ETR program is not allocated, meaning there are no specific units of gold attached to each ETR. The gold is not held separately from other unallocated bullion accounts held at the Mint and so all of the gold stored under every unallocated gold account will be co-mingled. Redemptions from one unallocated program may actually affect the operations of the other programs. The unallocated gold is also not audited or separately inspected on a stand-alone basis. This makes it very hard for the Mint to know exactly how much gold should be assigned to each unallocated gold program…

We at Maple Leaf Metals Exchange (MLME) offer storage on a fully-allocated basis. Bars are numbered and registered in the name of the buyer and not held on our own balance sheet so there is no risk of loss to the investor in the event that MLME meets an untimely end. We are simply acting as your custodian.

All bullion held in our allocated storage program is fully insured in the event of loss due to fire, theft or other risks. We use third-party, professional vaulting facilities throughout Canada and armored carriers provided by companies with a long-established reputation such as Brinks in order to ensure the soundness of our program. We believe that this is ultimately the best way for investors to purchase large quantities of bullion as they will benefit from a cost structure approximating the unallocated accounts and the greater level of security provided is a key feature that guarantees that the bullion will always be there when you need it. We can also arrange to have metals you already own delivered to our vaults from anywhere on earth.

Access to Liquidity

In an emergency, it is important to be able to access cash. This has meant the difference between life and death for many individuals and families during times of great economic and political turmoil. Investing in ETFs and ETRs can take weeks or months before you ever see any cash.

Having physical precious metals either stored in a readily accessible vault or securely at home provides much greater liquidity because, not only can gold and silver be easily bartered with, but they can be converted to cash at a number of outlets in a matter of hours or minutes.

Conclusion

While the Mint is a very respectable institution, as are a number of other issuers of gold and silver ETFs, trusts and other investment vehicles, even the best of institutions can fail during economic crises through no fault of their own. As such, we at Maple Leaf Metals Exchange feel that only possession is real protection in these volatile markets – and we offer lower costs, greater liquidity, the utmost security and unmatched convenience in accessing your physical precious metals to do just that. 

[Given what you have read above please think twice before investing in any of the “paper” gold ETFs and ETRs being offered for sale these days and seriously consider buying your physical gold from Maple Leaf Metals Exchange. It is the only way to go!]

*http://www.mapleleafmetals.ca/index.php/news/posession-is-protection/

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