One of Bleyer's core drives is making bullion investment more accessible to everyone. We hope that this article prompts a greater understanding as to why investing in paper gold and silver is not the same as owning your very own Physical Precious metals.
The paper markets are (generally) for quicker investments. Quicker moves in and out of a market. And yet, the question remains why - if both the price of physical gold and the price of owning the same ounce in paper gold is the same? Why would it matter how one owns that gold?
"Some people will tell you gold is the only true form of money, while others will decry its uselessness because you can’t spend it. Some will tell you about how gold was money for thousands of years, while others will point out that we finally managed to get rid of it last century. The same facts lead people to opposite conclusions. The same people who were once staunch advocates of gold can go to being its harshest critics and then return to favour it over the course of their career. The best example of this is former Federal Reserve chair Alan Greenspan.
"In the midst of all this, it’s tough to untangle any truths or reach any certain conclusions about gold. After all, when it comes to financial markets, the truth is what enough people perceive it to be. In the end, you’ll have to make up your own mind about gold, (Capital and Conflict)."
The real answer to the question is what is it that we want out of our investment? This will be shaped by our worldview. I've gleaned many insights into the worldviews of Bleyer's clients over the years, simply by sitting and listening to you as you've met with us, or most commonly, talked via the phone at length about your available investment options.
One of the most commonly held views is summed up so clearly here:
"If part of the reason you’re investing in precious metals is as a hedge against an economic downturn, black-swan events or experimental monetary policy with a longer-term outlook, there is no substitute for owning physical gold in your name. While investments in ‘paper-gold’, i.e. gold stocks or shares in exchange-traded funds (ETFs) can be an effective way to gain exposure to gold and to hedge physical holdings, they will never replicate the control and assurances that come with physical ownership.
One of the key reasons for investing in precious metals is their function as a natural hedge against monetary or banking crisis and potential systematic collapse. If such an event were to transpire into a loss of confidence in money, and paper-gold investors were to try to exercise or deliver the physical gold, what would happen? There is a possibility that investors might not be able to take delivery and ownership of the underlying assets. This is due to the low level of actual physical gold backing the paper gold, (Guardian Vaults)."
Bleyer only sell physical precious metals and we strongly recommend that clients view these as long-term investments. You can see how much the value of Gold has changed in the last 45 years here.
As opposed to investing in paper contracts, the second reason why investing in Physical Gold might be more suited to your personal investment approach, is the lack of hidden costs.
Physical gold costs are very transparent – transaction, storage, and insurance. Paper gold has obvious transaction costs, but carries some other, less-transparent costs. Any form of margined exposure to gold incurs borrowing costs on the margined amount. ETFs typically incur various fees, such as management fees, which are built into the share price movement as opposed to standard billing. Many ETFs are also market-made, and the bid/ask is presented as a spread, which acts as a further percentage-based transaction fee.
I understand that many of our clients are firm bugs of Silver, as well as Gold. So am I. In fact, it was how I started in this market. Silver is much more accessible in terms of price and, honestly, there's something beautiful about handling a stack of silver coins in the office. And many of the same principles apply. There is also a massive shortage of real physical silver to paper silver. But remember, the paper version just isn't the real thing.
While many precious metals investors realize the massive amount of paper trading leverage taking place in the gold market, they should see what is going on in the silver market. In a previous article, data provided showed an amazing $9.8 trillion of notional gold paper trading took place on the world’s exchanges in 2016 versus $42 billion in actual physical gold investment. This was a paper to physical ratio of 233 to 1.
The amount of paper trading leverage in the silver market is even higher than that. Let’s take a look at the pathetic amount of physical silver investment versus Central Bank asset purchases. According to the data in the recently released 2017 World Silver Survey, when we add up all the global silver investment demand last year, it adds up to a measly $4.4 billion. It was nearly ten times less than all physical gold investment in 2016.
"Even when the silver price reached a high of $49 in 2011, total global silver investment was only $6.6 billion. Looking over the market in the past six years, the total $32 billion of silver investment from 2011 to 2016 is nothing when we compare it to the staggering amount of Central Bank asset purchases. According to a recent Zerohedge article, Why “Nothing Matters”: Central Banks Have Bought A Record $1 Trillion In Assets In 2017."
And here are the central figures that put into perspective how much MORE valuable physical Gold and Silver should be their paper mirages.
If we look at the ratio of global notional paper silver traded in 2017 compared to actual silver investment, it was more than double that of gold. By multiplying the 159 billion ounces of paper silver traded in 2016 by the average spot price of $17.14, we arrive at a staggering $2.27 trillion of notional paper silver traded versus $4.4 billion actual silver investment. Thus, the paper notional silver trading ratio to physical silver investment was a whopping 517 to 1… double the 233/1 for gold. (Zerohedge)"
There is a pattern. A pattern of a flimsy mirage compared to the physical real deal. The dangers to one's well-being of trusting in an illusion are rife through history and mythology alike, and often involving images of Gold and Silver. Almost as if our psyches understand the true vs fake illusion of something made of gold versus something simply covered in it. "Scratch the surface" is a metaphor for a reason. Many an investor will have scratched the surface of a "gold" bar to see if what is inside matches the presented facade.
Returning to our original question, it really depends on what we want our investment to do for us.
If you want to dip in and out of the market real quick and be prepared to lose a quick gamble, then that's fine. Long-term wealth protection comes from holding the real deal; the beautifully crafted, taken from the earth and molded into something of weight, rarity and intense value kind of real deal. A paper contract in Gold or Silver can be "created" within seconds and is as flimsy a point of ownership as the paper its written upon.
Physical Gold and Silver investment has history, time, effort and true value within it.
"In the event of a major crisis or systematic failure, when the dust settles, paper gold will be little more than a piece of paper. A bar of gold will always be a bar of gold."
If you would either like to increase or begin your own Gold and precious metals holdings call one of the friendly Bleyer team on 01769 618618 or buy online via bleyerbullion.co.uk.