As private investors and people who like to make their money go further, we may have come to a decision that we would like to own some Gold and Silver. But, then, in our research, we may come across some articles that discuss different ways of owning these metals – most notably in an EFT (exchange-traded fund, or in essence a paper contract) or Physical Metal (coins and bars).
This is an extremely important consideration. It is worth pointing out the obvious, that Bleyer Bullion deals in Physical. We cannot advise. This decision-making process needs to match with your own personal investment goals.
The good news is there are several reputable commentators out there, in this internet age, who have invested in both and can shed some light on their differences. Here are just some to consider, before we explore the benefits of owning Physical:
ETFs v Physical
- Storage vs Management Costs: If you buy an ETF you lose about .40% of the value of your investment every year in management fees. If you buy physical gold, there are three principle associated costs – storage, insurance, and transportation. Insurance is dependent on the volume of Gold you own; however, both storage and transportation costs are less dependent on minor changes in volume.On the other hand, ETF management fee is totally dependent on volume/value.
- Length of Time You Wish to Own Gold: From an optimization point of view, if you are buying Gold long term, in large volumes, and you plan to keep on adding to that volume in good quantities, both storage and transportation costs will go down on a per unit basis. This logically gives Physical the edge over ETF’s over the long term and vice versa.
- A Hedge Against What? Gold is a hedge against the stock market. ETF is part of the stock market. You cannot hedge on an entity by betting on it – you have to get as far away from that entity if you want a good enough hedge. That is the bottom line.
- Examine the Reasons You Would Like to Own Gold: Think again why people want to invest in Gold. As we have shown before, Gold is negatively correlated to the stock market, the dollar and the economy in general. If the stock market goes south, all your paper investments will become just that – paper. This is why you want to have something tangible, something that has intrinsic value (Seeking Alpha).
The Advantages of Physical Gold
But, as the title of this piece suggests, we are now going to look squarely at the advantages of owning Physical Metal over an ETF. This viewpoint is for you to tally up with your own financial position or viewpoint. Each person will require different financial goals and there are a myriad of ways to reach those goals. But, here are 10 reasons why Physical Gold was, is and will remain an incredible investment opportunity:
- Tangible with Inherent Value: Physical gold is real and tangible. It is indestructible, impossible to create artificially, and difficult to counterfeit. Mining physical gold is arduous and costly. Physical gold therefore has inherent value and worth. In contrast, paper money doesn’t have any inherent value.
- Scarcity: Gold deposits are relatively scarce across the world and difficult to mine and extract. New supply of physical gold is therefore limited and explains why gold is a precious metal. Gold’s scarcity reinforces its inherent value.
- Cannot be Debased: Because of its physical characteristics and features, gold cannot be debased, and gold supply is immune to political meddling. Compare this to fiat money supplies which are constantly being debased and destroyed via deficit government spending, central bank quantitative easing and financial system bailouts. On a survivorship scale, gold has far outlived all fiat currencies by thousands of years.
- Store of Value: Gold is a preeminent store of value. Physical gold, in the form of gold bars or gold coins, retains its purchasing power over long periods of time despite general increases in the price of goods and services. In contrast, fiat currencies such as the US Dollar are not stores of value and their purchasing power consistently becomes eroded by inflation or the general increase in the price level. Fiat currencies have a long history of either becoming totally worthless and going out of circulation, or else becoming completely debased, such as the US dollar, while remaining in circulation. Since the creation of the US Federal Reserve in 1913, the US dollar has lost over 98% of its value relative to gold, i.e. the US dollar has lost over 98% of its purchasing power relative to gold.
- 6000 Year History: Gold has played a central role in society for thousands of years from the early civilizations of ancient Egypt, right up to the contemporary era. Gold has facilitated international trade throughout history, has been directly responsible for the economic expansion and prosperity of numerous civilizations throughout history, and has even been, due to gold exploration and mining, the direct catalyst for the growth of some of today’s best-known cities such as San Francisco, Johannesburg, and Sydney.
- 2500 Year Track Record as Money: Because of its ability to retain value and act as a store of value, physical gold has been used as money for over 2500 years. Gold coins were first issued in the Lydian civilization in what is now modern Turkey. Subsequently gold was used as a stable form of money in Persia, ancient Greece, ancient Rome, the Spanish and Portuguese Empires, the British Empire, and right through to the various international gold standards of the 20th century. It was only in August 1971 that the US famously suspended the convertibility of the US dollar into gold, a move which triggered the debt fuelled expansion that is still having repercussions within today’s monetary system. To put gold’s monetary importance into perspective, for 97% of the last 2500 years, gold has been chosen by numerous sophisticated civilizations as the form of money par excellence and an anchor of stability, precisely because of its ability to retain its value.
- Portable Anonymous Wealth: Gold bars and coins combine high value with high portability. In times of conflict and war, gold bars and gold coins are ideal for transporting wealth and savings across borders and within conflict zones in an anonymous fashion.
- Universal Acceptance: Gold is universally accepted as money across the world, with the highly liquid global market always providing ample sales opportunities for gold bars and gold coins. This means that whichever city you are in across the world, you can always sell or trade your Gold bars and Gold coins.
- Physical gold a tiny fraction of Paper Gold: The London wholesale gold market and the US-based COMEX gold futures market generate huge trading volumes of paper gold that dwarf the size of the physical Gold market. However, these markets only trade derivatives on Gold (futures and unallocated positions), representing fractionally-backed and unbacked claims on Gold that could never be convertible into physical gold by claim holders. In a scenario under which these paper gold markets became unsustainable, the prices of paper gold and physical gold would diverge, with the paper gold markets ceasing to trade and collapsing, and only physical Gold retaining any real value. Physical Gold is therefore an insurance against the collapse of the world’s vast paper gold markets.
By Definition Physical Gold is Not an ETF: Physical Gold provides all the benefits that gold-backed Exchange Traded Funds do not. ETFs provide exposure to the gold price, not to gold. Holding physical gold is by definition direct exposure to gold. With most gold-backed ETFs, you cannot convert the units into gold and take delivery of the gold, and in many cases, the locations of the vaults are not even known. When you hold a gold-backed ETF, the quantity of gold backing the ETF declines over time due to management fees being offset against the gold holdings. When you hold physical gold, you always remain with 100% of the actual gold you first purchased. There is no erosion of holdings (Credit to Zerohedge for the original article).
And so we end where we begin. 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