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Should I buy a gold ETF?
Are you looking for a price bet or the real thing?
For safe-haven, asset-preservation purposes, the best alternative is not futures, options, mining stocks or even ETFs, but delivery of the metal itself in the form of gold coins or bullion. Some think that owning an ETF is akin to owning real gold, but it is not. It is essentially a price bet simply because only owners of 10,000 ounces or more (with most trusts) can take delivery of the metal represented by the shares. Then there is the problem of counterparty risk. “Unlike physical gold bullion – which is a tangible asset,” says Mauldin Economics’ Olivier Garret, “ETFs are a financial product that have counterparty risk. Counterparty risk is present when there’s a possibility the other party in an agreement will default or fail to live up to their obligations. . .[O]ne of gold’s primary benefits is being the only financial asset that is not simultaneously somebody else’s liability. Therefore, these ETFs are a poor substitute.” In short, by owning an ETF instead of the real thing, investors expose themselves to one of the primary risks they hope to avoid through gold ownership.
The USAGOLD storage option – strong competition for the ETF
One of the advantages of a gold or silver ETF is that the trustee stores the metal for you and makes it easy to buy and sell. We can open a fully-allocated storage account for you that offers the same advantages. In fact, the annual cost of storage and insurance is actually lower than most ETF fees. You can buy and sell with a phone call. Most importantly, because specific coins and/or bullion are stored in your account, you can still take delivery in part or full whenever you so wish – something, as mentioned above, that the ETFs offer only to their largest institutional clients.
“While these can and do have a temporary small impact on the prices of gold and silver, the ultimate reason for the recent rise in their prices is the shortage of physical supplies in the New York COMEX and London markets.”
USAGOLD note: We made this Heller opinion piece a Premium Bulletin Board exclusive simply because no on else to our knowledge has brought attention to this unusual development in the COMEX gold futures market. It has to do with registered inventories and he very well could be putting his finger on why we keep getting unexpected support on the price drops. An interesting read. . . .
“According to historical performance, whenever the ratio of gold to silver is much higher than normal (usually 70 to 75), this means that the bottom of the silver price appears. When the ratio of gold to silver exceeds 80, the price of silver is too undervalued relative to the price of gold, which is often one of the most reliable buying signals for silver.”
USAGOLD note: The ratio topped at least temporarily at 92.32 to one in early May. The average ratio, as this article points out, is about 55 to one. “A new round of silver surpassing gold may have begun,” concludes the author.
Chart courtesy of TradingView.com
Re-post from 8-4-2019
Every once in a while we rummage around USAGOLD’s creaky old attic and dust-off a golden vignette from our storied past. Most first appeared in our monthly client letter, but this one comes from the first chapter of The ABCs of Gold Investing – How To Protect and Build Your Wealth With Gold. First published in 1996, it is a timeless story about gold’s ultimate value and it is called. . . . . .
Asset Preservation: Why Americans Need Gold
“The possession of gold has ruined fewer men than the lack of it.” – Thomas Bailey Aldrich
The incident is one of the most memorable of my career. Never before or since has the value of gold in preserving assets been made so abundantly clear to me. It was the mid-1970s. The United States was finally extricating itself from the conflict in South Vietnam. Thousands of South Vietnamese had fled their embattled homeland rather than face the vengeance of the rapidly advancing Communist forces.
A couple from South Vietnam who had been part of that exodus sat across from me in my Denver office. They had come to sell their gold. In broken English, the man told me the story of how he and his wife had escaped the fall of Saigon and certain reprisal by North Vietnamese troops. They got out with nothing more than a few personal belongings and the small cache of gold he now spread before me on my desk. His eyes widened as he explained why they were lucky to have survived those last fearful days of the South Vietnamese Republic. They had scrambled onto a fishing boat and had sailed into the South China Sea, where the U.S. Navy rescued them. These were Vietnamese “boat people,” survivors of the final chapter in the tragedy of Indochina. Now they were about to redeem their life savings in gold so that they could start a new business in the United States.
Their gold wrapped in rice paper was a type called Kim Thanh. These are the commonly traded units in Hong Kong and throughout the Far East. Kim Thanh weigh about 1.2 troy ounces, or a tael, as it is called in the Orient. They look like thick gold leaf rectangles 3 to 4 inches long, 11⁄2 to 2 inches wide, and a few millimeters deep. Kim Thanh are embossed with Oriental characters describing weight and purity. As a gesture to the Occident, they are stamped in the center with the words OR PUR, “pure gold.”
It wasn’t much gold—about 30 ounces—but it might as well have been a ton. The couple considered themselves very fortunate to have escaped with this small hoard of gold. They thanked me profusely for buying it. As we talked about Vietnam and their future in the United States, I couldn’t help but become caught up in their enthusiasm for the future. These resilient, hardworking, thrifty people now had a new lease on life. When they left my office that day, there was little doubt in my mind that they would be successful in their new life. It was rewarding to know that gold could do this for them. It was satisfying to know that I had helped them in this small way.
I kept those golden Kim Thanh for many years. They became something of a symbol for me—a reminder of the power and importance of gold. Today, when economic and financial problems have begun to signal deeper, more fundamental concerns for the United States, I still remember that Vietnamese couple and how important gold can be to a family’s future. Had the couple escaped with South Vietnamese paper money instead of gold, I could have done nothing for them. There was no exchange rate for the South Vietnamese currency because there was no longer a South Vietnam! Wisely, they had converted their savings to gold long before the helicopters lifted U.S. diplomats off the roof of the American Embassy in 1975.
Over the years, I have come to understand and appreciate the many important uses of gold—artistic, cultural, economic, and industrial. Gold is unsurpassed for jewelry and as a high-tech conductor of electricity. Gold has medical applications in dentistry and in treating diseases from arthritis to cancer. Gold plating is used in computers and in many other information-age technologies. In nanotechnology, it is used in a variety of cutting-edge medical diagnostic devices. As for its engineering uses, gold can be found in automobile anti-pollution devices, in jet engines, in architectural glass, and in a number of space applications. All of these pale, though, when compared to gold’s ancient function as money, as an asset of last resort and an unequaled store of value.
$25 off, offered at just 2.5% over spot gold.
Quantity Available: 100
We picked up a big batch of Gold Eagles cheap, and wanted to pass on the savings to our clients. If you wished you had purchased ahead of yesterday’s big move, now you can – at least practically speaking – as we’re knocking $25 off per coin. Only 100 coins offered/available at these discounts, and once they’re gone, they’re gone.
JULY SPECIAL OFFER
Better date 1900 $20 Liberty priced right
With gold starting to take off, our July offer affords an opportunity to ‘go back in time’ so to speak. First, we have a very limited group of 1900 dated MS63 $20 Liberties graded by NGC. 3x as rare as the more common 1904’s, yet $25 per coin less expensive, still trading at multi-year lows in terms of premium, and $250+ dollars per coin less than the last time gold traded in the low $1400’s (2013).
These are paired with a batch of stunning Brilliant Uncirculated pre-1900 Belgian 20 Francs offered at a deep discount (5% off!), and less per ounce than a modern bullion equivalent.
JULY SPECIAL OFFER
Available for immediate shipment.
Only 50 of the 1900 $20 Liberties and 500 of the Belgian 20 francs available.
First come-first served
“[I]t is important to understand why one pays a premium for 1 oz silver coins like the American Silver Eagle, Canadian Silver Maple Leaf, South African Silver Krugerrand, and many more sovereign silver coins. The premiums for these pieces can be in excess of $2 per ounce for silver when compared to a generic 1 oz silver round. The premiums for sovereign gold bullion can be in excess of $50 per ounce. Let’s dive into why.”
USAGOLD note: Our clientele almost always buys bullion in the form of gold and silver coins. This article provides an excellent overview if you are in the process of making a decision on what kind of gold and silver will best serve your needs.
“I think these are unlikely to be good real returning investments and that those that will most likely do best will be those that do well when the value of money is being depreciated and domestic and international conflicts are significant, such as gold,” the Bridgewater Associates leader [Ray Dalio] said.”
USAGOLD note: We featured a post on Ray Dalio’s current thinking just this morning. He is back now with an an even more detailed commentary via Linked In. . . .and a summary at the link above.
Repost from 7-20-2019
“Analysts at European precious metals retailer, Degussa, also said that they see gold prices pushing higher through the rest of the year as global interest rates ultimately head lower. Degussa analysts said that they see U.S. interest rates falling to 1.25 per cent by the first half of 2020. Meanwhile, European interest rates could fall further into negative territory to -0.7% from -0.4%. With inflation expected to rise this means that real interest rates could fall in negative territory, the analysts add. This is all good news for gold.”
USAGOLD note: We do not rate the probability high that gold will reach $2000 by the end of 2019 but stranger things have happened once the bull escapes the pen.
Repost from 7-10-2019