Tuesday , 5 March 2024

The Case Against Physical Gold and For Gold ETFs

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.

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