This article is probably going to draw a lot of heat. Regardless, I feel it is only fair to present both sides of the argument when it comes to owning physical gold vs. owning gold ETFs. [Here they are.] Words: 497
So says Mark Motive (www. planbeconomics.com) in edited excerpts from his article* as originally posted on Seeking Alpha.
Lorimer Wilson, editor of www.munKNEE.com (Your Key to Making Money!), has edited the article below for length and clarity – see Editor’s Note at the bottom of the page. This paragraph must be included in any article re-posting to avoid copyright infringement.
Motive goes on to say, in part:
I agree that there are many benefits to owning physical gold, such as:
- Limited derivative risk
- Limited credit/counterparty risk
- Accessible (provided it’s not locked up in a bank vault)
- Harder to trace and confiscate
- You can see and count what you own
However, there’s no such thing as a free lunch, and with these benefits come additional costs.
The Case Against Owning Physical Gold
1. Price: When you buy gold bullion you pay a marked-up price relative to spot. In some cases (depending on the size and type of the purchase), markups are typically 3%-5%. For some coins of smaller denominations, markups can be in the double digits.
2. Shipping: Unless you pick up gold directly from a dealer, you will have to pay for insured shipping. This could add 2%-3% to the spot price, depending on the size of the order.
3. Storage: Some people keep their gold in a box buried in their backyard. However, many are uncomfortable with the idea of storing their life savings within the reach of robbers and opt to store their physical gold in a bank vault or safety deposit box. This, of course, comes with the added cost of storage facilities charging up to 1% per year.
4. Selling: If you decide to sell physical gold, you may be required to obtain an appraisal, which is an added cost. Even then, the price received for gold delivered to a dealer will likely be at some discount to spot.
The Case For Gold ETFs
In comparison, a number of ETFs can provide investors quick, inexpensive access to gold. By pooling the funds of many smaller individual investors, ETFs posses a lot of bargaining power, which minimizes the spread vs. spot, shipping cost and storage cost. Moreover, the costs that remain are spread across a larger asset base, reducing the impact to the individual unitholder.
While I believe physical bullion has its place in a personal wealth-preservation strategy (particularly for when the “stuff” hits the fan), for those seeking quick inexpensive access to gold, I think an ETF may make more sense. With an expense ratio of 0.40%, SPDR Gold Trust (GLD) is often the first gold ETF investors think of. However, below I have listed a couple of additional ETFs that provide access to physical bullion in ETF form:
- ETFS Physical Gold Swiss Shares (SGOL)
- ETFS Physical Gold Asian Shares (AGOL)
- Sprott Physical Gold Trust (PHYS)
*http://seekingalpha.com/article/632251-the-case-against-physical-gold?source=email_macro_view&ifp=0 (To access the original article please copy the URL and paste it into your browser.)
Editor’s Note: The above article may have been edited ([ ]), abridged (…), and reformatted (including the title, some sub-titles and bold/italics emphases) 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.
There are many legitimate reasons to trade in gold and its derivatives. Gold has been proven time and time again to be an excellent “safe haven” investment, a holding that will appreciate in value during times of economic uncertainty. As such, gold may offer some valuable hedging and diversification benefits for a long-term portfolio. A number of exchange-traded products offering exposure to gold prices but not all gold ETFs are created equal. Here’s a quick rundown of factors to consider when making an investment in a gold ETF. Words: 1268
The most common misunderstandings regarding the primary gold ETF, SPDR Gold Trust (NYSE:GLD) is that it buys and sells gold. That is not the case. It is just a paper asset. It is not a way to buy gold and have someone else store your holdings for you. It is just an innovative way to “own gold.” [Below I outline more of just what GLD is and is not:] Words: 1470
I have always been leery of the two big exchange traded funds, SLV and GLD, because they lease the gold and silver that they sell you. I much prefer the ETFs SGOL, CEF, PSVL and PHYS which actually own the gold and silver they sell you and store it for you segregated vaults. Words: 717
Whole oceans of ink have been spilled detailing the good and not-so-good points of the closed-end fund CEF (Central Fund of Canada) and the twin ETF’s GLD (SPDR Gold Trust) and SLV (iShares Silver Trust) funds. My goal here is to distill the salient points down to the fewest words possible to help make your due diligence task somewhat less…well…tasking. [Let’s go!] Words: 650
Investors are looking for a safe place to put their money – an asset class they can “touch” and possibly trade even when no organized marketplace exists. That of course is the worst-case scenario and I do not believe it will get that far but the possibility is there and gold seems to achieve peace of mind for investors at the moment. As such, for me, GLD would be the only stock or ETF I would buy if I could own just one. Words: 862
It would seem that there is a considerable lack of understanding about what the term “safe haven” actually means when it comes to gold. Let me explain just what it means – and does not mean. Words: 740
Compare and save! Who is the most reputable, cheapest and most reliable precious metals dealer to buy your physical gold and silver from? Their are hundreds of dealers touting their wares but when it comes to direct comparisons only a few rise to the top of the list. Here they are. Words: 262
You have no doubt read countless articles on the price of gold costing x dollars per “troy ounce” or perhaps just x dollars per “ounce” but the difference between the two measurements is significant. For that matter, what’s the difference between a 24 karat gold ring and an 18 karat gold ring? Let me explain. Words: 863
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
The infographic below on vaulted gold explains what vaulted gold is and visualizes key facts relating to investments in gold that is stored on behalf of investors in high-security vaults.