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richardab1967

Paper or physical gold - How, where are you holding?

Gold: Paper, Physical. Bars or Coins  

36 members have voted

  1. 1. Gold Holdings, What %, What form? (multiple choice)

    • I have over 50% of my wealth in some kind of gold, or gold shares
      15
    • I have 25-50% of wealth (as above)
      7
    • I have 10-25% of wealth (as above)
      7
    • I have 5-10% of wealth (as above)
      2
    • I have 1-5% of wealth (as above)
      3
    • I have Nothing or under 1% of wealth (as above)
      1
    • === second part === Reported above is:
      1
    • Mostly in Gold shares
      2
    • Mostly paper Gold, or calls on Gold etfs
      0
    • Mostly physical gold
      22
    • A mixture of all of these
      3
    • I would rather not say
      1
  2. 2. Where do you keep (the majority of) your "Gold"?

    • In a bank vault (physicals, or share certs)
      10
    • In a "safe place" at home. or elsewhere
      9
    • With my bank (as a paper holding)
      0
    • With my broker (as an account holding)
      3
    • As GoldMoney, or with Bullion Vault
      10
    • A mixture of the above
      6
    • I would rather not say, or irrelevant
      8
  3. 3. Gold Coins and bars, etc. which of these would you buy? (multiple)

    • Gold Eagles, minted by US or Gold sovereigns from UK
      29
    • Gold coins issued by South African, Canadian or Australian Govt. mint
      23
    • Gold coins issued by other govt. mints (please specify)
      12
    • Gold coins issued by reputable private mints (specify)
      4
    • Gold bars, of 999 or 9999 fineness, with a reputable stamp and certificate
      17
    • Any sort of gold which has been assayed
      3
    • Gold jewelry
      7
    • Other, or no comment
      1


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Paper or physical gold - How, where are you holding?

And Which Gold Coins (or bars) would you buy?

======================================

 

Ok I understand the preference for physical gold and I do have a small amount.

 

But I have a SIPP pension fund with HL that has access to some gold related ETFs but unfortunately does not have access to BV and GM's Gold SIPP which I believe is the next nearest thing to the real thing in your pension. I have read and heard about the risks with the paper gold ETFs but could someone explain the differences between the typical paper gold ETF that people have raised concerns about and the physical ETCs for example ETFS Securities "Physical Gold" PHAU & PHGP or "Gold Bullion" GBS.

 

My understanding is that these physical ETCs have an audited amount of allocated bars to match the fund in an HSBC vault, is that not similar to the way Goldmoney and BV works.

 

Thanks

Richard

========

 

1249981134034943200.jpg

I have added a poll on HOW WE HOLD GOLD - DrBubb, 10 Aug. 2009

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Ok I understand the preference for physical gold and I do have a small amount.

 

But I have a SIPP pension fund with HL that has access to some gold related ETFs but unfortunately does not have access to BV and GM's Gold SIPP which I believe is the next nearest thing to the real thing in your pension. I have read and heard about the risks with the paper gold ETFs but could someone explain the differences between the typical paper gold ETF that people have raised concerns about and the physical ETCs for example ETFS Securities "Physical Gold" PHAU & PHGP or "Gold Bullion" GBS.

 

My understanding is that these physical ETCs have an audited amount of allocated bars to match the fund in an HSBC vault, is that not similar to the way Goldmoney and BV works.

 

Thanks

Richard

 

I do not understand exactly how the paper PMs work but I have heard that there is a risk that the paper is not backed up by the amount of bullion in existence. The paper is more like a promise of an amount of gold. Someone will correct me if I am wrong.

 

BV and GM actually allocate bars or fractions of bars of gold and silver to you. These are stored in a vault. You cannot buy PMs from BV or GM without the PMs actually existing and being under their control in a vault.

 

Many people view this as a safer form of investment.

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Literally loads of things spring to mind... this article re silver should make you think: (and I think many ETFs contain clauses which enable them to be settled in cash vs the COMEX price...)

 

http://seekingalpha.com/article/148141-sig...wals-from-comex

Ending last week with nearly 119 million ounces of silver (Moz) in the four COMEX depositories, this week the word has been get your silver while you can. Slightly less than 2 million ounces of silver has been withdrawn from COMEX stocks in three days (July 6-8), with eligible silver dropping from 55.4 Moz to 53.5 Moz. Significant withdraws were experienced by HSBC Bank (HBC) (down 1.26 Moz) and Sottia Mocatta (down 546,000 oz). Brinks also registered a withdraw of 30,000 oz of silver. The reduction is only 2% of total stocks that COMEX claims, however it is nearly 5% of eligible stocks that can be used for futures redemption. The remainder is registered, but is already allocated (owned) by other investors who are storing it in the vaults.

 

COMEX futures contracts however have been let for 429 Moz as of July 6 (vs 53 Moz of "eligible" silver in the vaults. If you add the future spreads, then COMEX has 522 Moz of contracts out vs 53 Moz of silver to cover those contracts.

 

For leverage fans, that is 10 oz of silver under contract for every ounce of silver available. If you count the fact that COMEX allows you to purchase a contract with 10%, then actual leverage vs physical metal held by COMEX is closer to 100 to 1.

 

That should answer the question as to why someone would refer to it as "paper" silver. It should also generate a question as to why so much silver is starting to flow out of the COMEX.

 

and the worry is that if all the longs stood for delivery, there would not be enough silver to hand out. They rely on netting to make the fantasy work.

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It's a sad world when you feel you cannot trust anyone...

 

FWIW I recently opened a GoldMoney Gold Pension - I had the same dilema. You SHOULD be able to trust EFT Securities - if you don't, why would you trust anyone else? But if you want to put gold into your pension you have to trust someone, so I went with what looked like the safest option...

 

I would also suggest looking into the 'Swiss ZKB Gold ETF' which is supposed to be safe...report back here if you get any info (please).

 

The Uk Pensions thread / examining options thread my help you here too...

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A contract promising a quantity of gold may be settled in legal tender -

 

'Legal tender has a very narrow and technical meaning in the settlement of debts. It means that a debtor cannot successfully be sued for non-payment if he pays into court in legal tender.'

 

http://www.royalmint.com/corporate/policie...guidelines.aspx

 

So, if you buy 'paper gold' you might find that the etf does not have any real gold at all. They may just give you the market value of the gold in paper, within a specified time period. In which case you could be left holding a pile of paper. In a currency crisis this would not be a good outcome.

 

Exchanging actual metal with currency can be done easily at retail outlets on the high-street. In times of hyperinflation or deflation you can use gold to put food in your mouth. But try taking 'paper gold' into a pawn shop and see what they give you for it.

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I thoroughly reccommend listening to the Financial Sense Newshour with Jim P and John L if you dont already. They go into detail often about the merits of real gold over paper gold.

 

Personally i don't see anything wrong with a small amout in something like GLD but only as a small proportion of a precious metals portfolio. From a trading perspective its a lot easier to move in and out of an ETF but then the risks are:

 

1) The ETF is not backed by real metal/enough real metal

2) You don't neccessarily have the ability to 'claim' your metal

3) ETF funds 'track' a metal price - they don't 'mirror' it in terms of rises and falls

 

I think holding mining shares are better bang for the buck than a gold/silver ETF (some miners are still a little on the low side of valuation) and will perform a lot stronger if PM's rise - but they can be more volitile and it does take time/effort to pick which stocks to run with.

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Thanks all.

 

I do listen to FSN regularly, its been a great education but sometimes I do think they have a certain bias, ie heavily against gold ETFs just when they announced their own gold bullion storage service, hmmm.

 

I do have some gold mining stocks too.

 

Most of the concerns raised above are the ones I have read previously but they seem to be referring to the unallocated type ETF where the value follows the value of gold, but do the concerns equally apply to the physical ETFs that hold audited allocated bullion or are they all the same. Is it just a case of trust as to whether the gold is genuine, but surely thats why its audited or whether two or more ETFs are counting the same bullion, but isn't that why it is "allocated".

 

I don't have alot of choice as I don't want to change the SIPP provider so I have put some pension money in the PHGP Physical ETC. Of course money outside the pension would be in physical or goldmoney.

 

Cheers

Richard

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...

 

My understanding is that these physical ETCs have an audited amount of allocated bars to match the fund in an HSBC vault, is that not similar to the way Goldmoney and BV works.

...

 

 

If you go Long on 1,000,000 Ozt using PHAU

And I go Short on 1,000,000 Ozt using PHAU on the same day

 

PHAU won’t buy any gold because the net gold liability is unchanged. The security of your gold is dependant on my ability to deliver it*.

 

You cannot ‘short’ gold at BV and GM so this problem doesn’t exist.

 

cgnao posted a highlighted set of ETF/C T&C to show some of the differences. I can’t find it unfortunately.

 

* ? – I’m adding a little question mark here because I am not 100% certain.

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If you go Long on 1,000,000 Ozt using PHAU

And I go Short on 1,000,000 Ozt using PHAU on the same day

 

PHAU won’t buy any gold because the net gold liability is unchanged. The security of your gold is dependant on my ability to deliver it*.

 

You cannot ‘short’ gold at BV and GM so this problem doesn’t exist.

 

cgnao posted a highlighted set of ETF/C T&C to show some of the differences. I can’t find it unfortunately.

 

* ? – I’m adding a little question mark here because I am not 100% certain.

 

Can you go short on an ETF Securities physical PHAU. I can't find a short version....but then I don't really understand the mechanics!

 

Yes I remember reading cgnaos thread too way back, but I thought it referred again to the unbacked ETF's that were "insured" by AIG, didn't those ETF's freak out for a day when the AIG thing happened. I don't think the physical ETF's did the same thing.

 

I guess the implication is that if AIG can go wobbly than so can HSBC, but HSBC are supposedly holding the physical not insuring the ETF as AIG was. Also if I was concerned about what HSBC was going to do with the physical, should I not be concerned about what goldmoney might do or their storage people.

 

Thanks

Richard

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Can you go short on an ETF Securities physical PHAU. I can't find a short version....but then I don't really understand the mechanics!

 

I believe so. The Key Features in the fact sheet says – ‘Able to short, and margin eligible’

http://www.etfsecurities.com/en/updates/do..._Fact_sheet.pdf

 

Yes I remember reading cgnaos thread too way back, but I thought it referred again to the unbacked ETF's that were "insured" by AIG, didn't those ETF's freak out for a day when the AIG thing happened. I don't think the physical ETF's did the same thing.

Can you find it and post a link? I have looked for it every time this subject has come up and I have been unable to find it

 

I guess the implication is that if AIG can go wobbly than so can HSBC, but HSBC are supposedly holding the physical not insuring the ETF as AIG was. Also if I was concerned about what HSBC was going to do with the physical, should I not be concerned about what goldmoney might do or their storage people.

BV and GM store YOUR gold. In the case of an ETC, the ETC owns the gold and you own a share of the ETC

 

Allocated storage of precious metals is the best way to store gold, silver and platinum, because it implies that you are the direct owner of the metal, not GoldMoney or any other third-party. When a precious metal is allocated, there is a defined and recorded owner of the metal, namely you. The manager of the metal (i.e., GoldMoney) or the vault do not have any direct claim on the metal.

 

A good way to compare allocated versus unallocated metal is to look at it in accounting terms. Allocated metal does not show up on the balance sheet of GoldMoney or the vault operator. It is an off balance sheet item, which is the property of its customers.

 

Unallocated metal shows up in a company's balance sheet as an asset, and the claims to the metal from its customers as the corresponding liability. This is how most bank bullion accounts work, as well as the various certificate programs worldwide sponsored by governments or private entities. If one of those entities were to go bust, any of its creditors would have first claim to those assets, leaving the entity's customers with no access to the metal (liabilities) promised to them.

 

When your metal is held in allocated storage, you have the assurance that your gold, silver and platinum is protected should GoldMoney or the vault it works with ever face bankruptcy or other financial difficulties, because their creditors would have no claim to your property since it is not a financial asset of GoldMoney or the vault.

http://goldmoney.com/faq-allocated-storage.html

 

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Thanks all.

 

I do listen to FSN regularly, its been a great education but sometimes I do think they have a certain bias, ie heavily against gold ETFs just when they announced their own gold bullion storage service, hmmm.

 

I do have some gold mining stocks too.

 

Most of the concerns raised above are the ones I have read previously but they seem to be referring to the unallocated type ETF where the value follows the value of gold, but do the concerns equally apply to the physical ETFs that hold audited allocated bullion or are they all the same. Is it just a case of trust as to whether the gold is genuine, but surely thats why its audited or whether two or more ETFs are counting the same bullion, but isn't that why it is "allocated".

 

I don't have alot of choice as I don't want to change the SIPP provider so I have put some pension money in the PHGP Physical ETC. Of course money outside the pension would be in physical or goldmoney.

 

Cheers

Richard

 

Understandable but to be fair to FSN they were talking about the problems of paper over physical gold even before they setup their own gold holding arrangements and, yes, starting talking them up more on the show.

 

I agree they have a bit of an agenda but compared to almost any other media i think they offer a view most similar to my own opinion of how things will progress.

 

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I don't have alot of choice as I don't want to change the SIPP provider so I have put some pension money in the PHGP Physical ETC. Of course money outside the pension would be in physical or goldmoney.

 

You wouldn't have to change SIPP provider - you can have more than one SIPP, but you'll have more than one lot of fees to pay.

 

Therefore it might be better to go down the (cheaper) BullionVault route with one of their listed pension providers.

 

 

 

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If you go Long on 1,000,000 Ozt using PHAU

And I go Short on 1,000,000 Ozt using PHAU on the same day

 

PHAU won’t buy any gold because the net gold liability is unchanged. The security of your gold is dependant on my ability to deliver it*.

 

You cannot ‘short’ gold at BV and GM so this problem doesn’t exist.

 

cgnao posted a highlighted set of ETF/C T&C to show some of the differences. I can’t find it unfortunately.

 

* ? – I’m adding a little question mark here because I am not 100% certain.

By going short you aren't promising to deliver gold, you are promising to deliver shares when you cover/buy back your short position. In theory when you buy back the shares in this specific scenario ETFC would have to go and buy the 1,000,000 oz as the overall position would be net long 1,000,000 oz.

 

I think these specifics of being able to short or not aren't the point. ETFs are paper traded on a stock exchange. That is ultimately the real risk, whether you believe the exchanges will go to hell or whether you think there is fraud in the setup of the various ETFs or in their operations (e.g. they don't actually buy any gold, they just keep your money, aka ponzi scheme).

 

The bottom line is do you trust the ETFs? Personally I do for the moment and for a small % of my PM portfolio. I like Goldmoney and have a % of PMs there, but how can I be absolutely sure there isn't any fraud going on? No one can be sure. You need to diversify your PM holdings if you have any significant amounts of PMs, if you have just a little keep it all 100% physical near you and hidden.

 

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By going short you aren't promising to deliver gold, you are promising to deliver shares when you cover/buy back your short position. In theory when you buy back the shares in this specific scenario ETFC would have to go and buy the 1,000,000 oz as the overall position would be net long 1,000,000 oz.

...

Aren’t a ‘number of shares’ and ‘an amount of gold’ effectively the same thing if the ETC is claiming to be fully backed by physical gold?

 

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Aren’t a ‘number of shares’ and ‘an amount of gold’ effectively the same thing if the ETC is claiming to be fully backed by physical gold?

I don't think so, because what happens is you buy the shares which forces the ETC to buy the physical gold. You don't need any actual gold yourself to go short as you are borrowing shares. If you are long the shares, you can't redeem them for physical gold through a regular brokerage account - at least that's my understanding.

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I’ll have to think about this for a while……

 

 

 

Say we both own ETC shares.

 

1. If I buy your shares – The ETC does not buy any more gold

 

2. If I buy more shares from the ETC – The ETC must buy more gold to back these new shares

 

3. If I sell my shares to you – The ETC does not need to do anything.

 

4. If I sell my shares to the ETC – The ETC must sell gold.

 

(I think we are both agreed to this point)

 

 

 

Now, say neither of us owns any shares

 

5. If I sell shares to you – The ETC does not need to do anything – I owe you some shares.

 

(I think we are still agreed)

 

6. If I sell shares to the ETC (Same as 4) - so the ETC must sell gold - BUT, at the same time, I owe the ETC some shares which I must purchase in the future.

 

 

Can No.6 ever happen and how will the ETC respond?

 

 

Will it..

 

A. Sell gold when I go short and then buy it again in the future when I buy

B. Hold the gold it owns steady knowing I am a future forced buyer.

 

 

I can’t find any information on the website, the prospectus download isn’t working.

 

I’m going to email them and ask the question.

 

 

 

 

I did find this though. Apparently you can withdraw your bullion

http://www.etfsecurities.com/en/faqs/etfs_faqs.asp

25. Can I take physical delivery of my bullion?

 

For the physically backed ETCs you can arrange for physical delivery of the bullion. This includes Gold Bullion Securities Limited and Metal Securities Limited.

 

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I believe so. The Key Features in the fact sheet says – ‘Able to short, and margin eligible’

http://www.etfsecurities.com/en/updates/do..._Fact_sheet.pdf

...

 

I emailed ETF Securities about shorting the physical precious metal ETCs.

 

Here’s the reply.

 

"Able to short" refers to our ETFS Short Gold product. If the gold price goes down, this product will go up based on the daily percentage change in the gold price. This product is based on the Gold future and is a completely separate product.

 

If you invest in ETFS Physical Gold then physical gold will be delivered into the vault. Our website allows you to see the gold bar serial numbers that are held. The gold is also audited twice a year to verify this and check the gold meets the relevant standards.

 

There is no netting between the products.

 

I hope this answers your questions

 

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I did find this though. Apparently you can withdraw your bullion

http://www.etfsecurities.com/en/faqs/etfs_faqs.asp

 

Interesting that you can actually take delivery as a retail investor. I presume you need enough for a LBMA bar.

 

Yes we are agreed on points 1-4. I'm not sure though if you are thinking about 5-6 correctly though because you are starting from the basis that both you and I have zero shares

 

"5. If I sell shares to you – The ETC does not need to do anything – I owe you some shares."

 

To sell me those shares you would need to borrow them in a margin account. Your brokerage would need to locate the shares you want to sell from some other party who holds them in a margin account or some other dealer somewhere. So the shares you are borrowing should be backed by real shares somewhere (which in turn are backed by gold). All of this assumes you aren't naked shorting, which my understanding is illegal in USA, not sure about UK. I know in my margin account I can't short UK shares if the broker doesn't have any shares available. This has happened to me (never shorted gold ETFs yet though!) and I haven't been able to execute a short trade in an ETC because there weren't any shares available to borrow.

 

"6. If I sell shares to the ETC (Same as 4) - so the ETC must sell gold - BUT, at the same time, I owe the ETC some shares which I must purchase in the future."

 

I don't think this can happen assuming the same as I explain in #5 that you can't naked short.

 

What are really discussing is what the mechanisms of a short sale are and my brokerage is extremely careful now not present any FTDs (Fail To Delivers). It nearly made me buy back a small short position I had because the shares I had borrowed were no longer available. It located some shares before the end of the trading session but it would have automatically bought back my position if no shares had become available

 

Hope some of that makes sense

 

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I emailed ETF Securities about shorting the physical precious metal ETCs.

 

Here’s the reply.

I don't think they really understood/answered your question. You can short the physical ETFs, only as long as you have a margin account and your broker lets you do so and they have shares available (from other margin customers or other dealers) to borrow.

 

The Short ETFs like they say are a completely different product and have their own separate issues.

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...

 

Hope some of that makes sense

Yes it does make sense and I believe you are right.

 

I don't think they really understood/answered your question.

...

This was my question (below). His answer seems to match up ok with my question

 

 

 

Hi,

 

I have some questions about ETFS Physical Gold. I have been unable to

download the prospectus from your website.

 

I notice the Key Features of the ETC lists 'Able to short'. I am

struggling to understand what this means.

 

I understand that the ETC will buy gold if I buy the ETC with £10,000.

The amount of gold bought will match my purchase (minus my purchasing fees).

 

But what will happen if someone shorts the ETC with £10,000? Will it

sell £10,000 of gold?

 

What I am getting at....... will the ETC buy and hold gold to back my

purchase if I buy £10,000 and someone else shorts £10,000 on the same day?

 

I would be concerned if the 'backing' of my purchase replies on someone

else to deliver on their short position.

 

I look forward to your response. Thank you

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Yes it does make sense and I believe you are right.

 

 

This was my question (below). His answer seems to match up ok with my question

 

 

 

Hi,

 

I have some questions about ETFS Physical Gold. I have been unable to

download the prospectus from your website.

 

I notice the Key Features of the ETC lists 'Able to short'. I am

struggling to understand what this means.

 

I understand that the ETC will buy gold if I buy the ETC with £10,000.

The amount of gold bought will match my purchase (minus my purchasing fees).

 

But what will happen if someone shorts the ETC with £10,000? Will it

sell £10,000 of gold?

 

What I am getting at....... will the ETC buy and hold gold to back my

purchase if I buy £10,000 and someone else shorts £10,000 on the same day?

 

I would be concerned if the 'backing' of my purchase replies on someone

else to deliver on their short position.

 

I look forward to your response. Thank you

 

 

I think they misunderstood because shorting ticker PHAU is completly different to buying the Short Gold ETC (ticker SBUL).

 

To short PHAU your broker should be borrowing the shares from another customer/broker before he lets you short. In this case you are merely selling someone else's gold and you will have to buy it back at some point.

 

If you buy SBUL it isn't backed by any physical gold at all, it is a bet on the daily percentage change in price of gold and is backed up by futures contracts. At least that's the way I understand it.

 

 

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