Integrity of bullion ETFs

Discussion of the Gold portion of the Permanent Portfolio

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murphy_p_t
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Integrity of bullion ETFs

Post by murphy_p_t » Sat Aug 08, 2020 12:12 pm

Can you point me to robust discussion of the integrity of gold and silver ETFs?

I think this topic was touched on some time ago on this forum. However, my preference is for commentators who have done deep research, or the like, on these financial instruments.

I think this is very timely in light of recent developments.
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Smith1776
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Re: Integrity of bullion ETFs

Post by Smith1776 » Sat Aug 08, 2020 2:47 pm

I don't have as long a forum history here as many other people. I don't know of any super detailed discussions about bullion ETF integrity off the top of my head. However I can tell you that the general consensus amongst the hard money community is that Sprott has the most secure vehicles for digital bullion ownership. The fees are commensurately high though, so it's not a free lunch. Additionally, the funds are closed end so large premiums and discounts are common.
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Re: Integrity of bullion ETFs

Post by pp4me » Sat Aug 08, 2020 4:23 pm

murphy_p_t wrote:
Sat Aug 08, 2020 12:12 pm
I think this is very timely in light of recent developments.
What recent developments?
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Smith1776
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Re: Integrity of bullion ETFs

Post by Smith1776 » Sat Aug 08, 2020 4:27 pm

pp4me wrote:
Sat Aug 08, 2020 4:23 pm
murphy_p_t wrote:
Sat Aug 08, 2020 12:12 pm
I think this is very timely in light of recent developments.
What recent developments?
I imagine he's referring to the recent bull market in metals.
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Kbg
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Re: Integrity of bullion ETFs

Post by Kbg » Sat Aug 08, 2020 11:37 pm

murphy_p_t wrote:
Sat Aug 08, 2020 12:12 pm
Can you point me to robust discussion of the integrity of gold and silver ETFs?

I think this topic was touched on some time ago on this forum. However, my preference is for commentators who have done deep research, or the like, on these financial instruments.

I think this is very timely in light of recent developments.
It's painful, but really, read the prospectus or several of them. A full prospectus is a fully "lawyered" up document that meets a whole bunch of requirements levied on the provider to specify a whole bunch of stuff including explicit statements on multiple risks. There are probably risk statements in all of them you have never thought of that are clearly laid out for anyone able to suffer through the writing.

I actually have read several gold ETF prospectuses and I will tell you that a lot of the popular ones that are supposedly "safer" are ran pretty much like every other one of them. You will see the same business structure repeatedly show up and they are all pretty much the same. In short, be ware sales gimmickry that you just end up paying more management fees for. Now perhaps there is a specific ETF feature that appeals to you and if you are willing to pay extra for it, that's just fine. However, if you are going to stick with paper gold then you are probably overpaying for something that isn't value added for you.

There are a lot of conspiracy theories stuff on GLD, but there is a reason why it is the largest gold ETF and can charge a larger fee than other gold funds. People/firms with a whole lot of money on the line do actually perform due diligence because they know they have to. If one is going to go with paper gold, the rules I think are pretty much like any other paper asset...go with a huge firm that is systemically important and has lots of regulation. You could certainly do worse than iShares/Blackrock as a firm.

In short, and not to be mean, but if this issue is important to you do your own homework. It will be far more accurate and useful to you than some anonymous person on a website.

Out side of the box...look into gold futures that are physical delivery (and ensure you have a broker that allows physical delivery). For example, if you buy a MGC micro future and don't close the contract you are going to get an once of gold at the market price with a fee for delivery. Or if you have a big wallet with a full GC futures contract 100oz are going to be delivered to you. Gold futures, all things being equal, lose money over the term of the contract which in the case of gold equals financing/interest and the cost of storage...you don't get some weird tax form telling you how to figure out your actual basis when subtracting storage costs for however many days you held the ETF like you do with most ETFs...and you get futures tax treatment vs. collectibles.

By way of full disclosure, I have SGOL, DGP and MGC futures as my gold components. My main driver for going with SGOL was cost and liquidity and MGC is more of an experiment for how to have leveraged gold in my portfolio and DGP is leverage in an ETF. I may swap out DGP for UGL however. (actually, I probably really should swap those two out as I do prefer an ETF to an ETN and it doesn't appear the ETN structure in general may have much life left in the US.)
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Re: Integrity of bullion ETFs

Post by technovelist » Sun Aug 09, 2020 8:52 am

Kbg wrote:
Sat Aug 08, 2020 11:37 pm

Out side of the box...look into gold futures that are physical delivery (and ensure you have a broker that allows physical delivery). For example, if you buy a MGC micro future and don't close the contract you are going to get an once of gold at the market price with a fee for delivery.
Actually, one MGC future represents 10 ounces of gold, not one ounce. Also, you can't take physical delivery of gold under these contracts unless you have 10 of them, representing 100 ounces.

"Although the E-micro Gold futures contract does not allow for delivery of a 10-oz. gold bar, investors may, through a simple accumulation and conversion process, take delivery of a 100-oz. COMEX gold warrant (which represents an actual bar of gold). "

(http://www.kisfutures.com/EmicroGoldFuturesContract.pdf)
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Re: Integrity of bullion ETFs

Post by Ad Orientem » Sun Aug 09, 2020 12:05 pm

There have been lots of discussions about gold ETFs. Just go back through the archives. But the upshot is that conspiracy theories notwithstanding, they are a generally safe and convenient way to get exposure to gold. I do advocate keeping part of your holding in physical. But ETFs are much more liquid. They also have the advantage of being generally more cost effective as you largely skip the premiums exacted on physical bullion and you don't need to worry about storage and all the costs and security concerns that go along with that.
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Re: Integrity of bullion ETFs

Post by Kbg » Sun Aug 09, 2020 1:29 pm

Tn is correct, my error.
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