There are many tools available to buy gold, which is the bedrock of any portfolio. These include coins, bars, futures contracts, certificates, options, and what has recently perhaps become the most popular instrument of all, the gold exchange-traded fund – the so-called ETF – but which of these many tools is the right one for you?
So writes James Turk (www.goldmoney.com) in edited excerpts from his original article* entitled Gold or a gold ETF?.
This article is presented compliments of www.munKNEE.com (Your Key to Making Money!) and may have been edited ([ ]), abridged (…) and/or reformatted (some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.
Turk goes on to say in further edited excerpts:
The answer to this question begins by first determining your objective. In other words, it is necessary to identify the reasons you want to own gold. Once these are clearly understood, the right tools can then be chosen to enable you to meet the objective you intend to accomplish by owning gold, of which there are two.
1. Fluctuations in the price of gold enable skilful traders to profit from these moves, buying when they expect the price to rise and selling in anticipation of a lower price. In this sense, gold is often characterised as an investment, but it isn’t that. Gold is a sterile asset that does not generate cash flow. It doesn’t have a management team or a balance sheet, so clearly gold is not an investment. Gold is money, and therefore is part of the liquidity everyone needs in his or her portfolio, which leads to the other reason to own gold.
2. Gold is a safe haven. It does not have counterparty risk. Because it is a tangible asset, its value does not rest upon someone’s – or more to the point – some bank’s promise. When you own gold, you own money completely outside the banking system.
From the above two observations, you may be starting to sense that there are actually two types of gold: paper gold and physical gold. The former is a financial asset, which means it has counterparty risk. The latter is altogether different. Physical gold is a tangible asset, and consequently, it therefore does not have counterparty risk. Only physical gold provides a safe haven so do not view any of the gold ETFs as an alternative to physical gold, because they are not. The ETFs meet the first objective by providing exposure to the gold price, but they are not a safe haven. The ETFs should be compared to a gold futures contract, not to physical metal.
A futures contract tracks the future price of gold in the form of a tradable contract. In a similar vein, an ETF tracks the spot price of gold in the form of a tradable security.
I favour the concept of a gold exchange-traded fund, just as I think a futures contract can be useful, but one needs to choose the right tool for the right job. Physical metal is one thing, and the paper representation of metal in an ETF that simply tracks the gold price is something entirely different. Importantly, it is physical gold itself – and not just the promise to pay metal – that is the bedrock asset of one’s portfolio.
Use gold ETFs as you would a futures contract – as a trading tool. It is not an alternative to owning physical metal. If you want to own gold because of its safe-haven attributes, then buy physical metal.
Editor’s Note: The author’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor.
*http://www.goldmoney.com/gold-research/james-turk/gold-or-a-gold-etf.html (Published by GoldMoney; Copyright © 2013. All rights reserved; Written by James Turk)
You have probably read in multiple articles that mining stocks offer leverage to the movement of the underlying metal. This hasn’t been the case over the past several years, however, which has created some confusion in the precious metals investment community. While the gold price has more than doubled (+110%) in the past five years, the AMEX Gold Bugs Index (HUI) is up only 15% so why do people keep saying that mining stocks offer leverage? Well, because they do during certain periods of the bull market. [Let me explain the situation more fully and exactly where we are in the current bull market.] Words: 677
Worldwide economic uncertainty has created a growing interest in precious metals as a way to…protect one’s wealth from impending economic Armageddon…Unfortunately, many today don’t know how to purchase or store bullion, and consequently may find themselves as vulnerable to financial collapse as those who didn’t purchase any bullion at all. [This article outlines what rigorous due diligence is absolutely required when entering into an agreement to buy gold bullion and how it should be stored and why. Don’t buy any gold product without reading this article first.]
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: 4974
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
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.