Physical + Bullionvault + Paxos combo primer

[seajay]

Here are some of my notes/primer that I thought I'd share (no guarantee as to the accuracy)

One of the most liquid assets on the planet, gold is bought and sold in staggering amounts each day in trading hubs around the world. In 2020 during the height of the COVID-19 pandemic the daily gold exchange topped previous records to reach 251 million ounces of gold, worth USD 490 billion.

Loco is short for location. In the industry, ‘spot price’ is really shorthand for ‘the price of gold located in London’. Why London? Because that is where, historically, gold was traded. It is where the major bullion banks have head offices and where some pretty big vaults – and a fair amount of physical gold – is located.

If you are buying or selling with a dealer which has trading accounts with bullion banks, the spot price they are quoting is effectively a loco London price. This is essentially gold’s ‘base’ price. Paxos is a regulated blockchain infrastructure platform. Paxos uses technology to tokenize, custody, trade and settle assets. i.e.is a potential dealer/trading account to act for you.

If you open a Paxos account you can credit that using a range of choices, however we’ll keep things simple and assume that you credit the account with USD transferred from your regular bank account. For US there is no charge, for international there’s a $30 fee to both deposit and withdraw.

Once your account is credited you can buy or sell using either the platform, or via the itBit exchange. Again for simplicity we’ll assume you buy/sell directly via PaxOS. PaxOS uses the Ethereum (ERC20) network. In contrast to Bitcoin that was created as a response to government monetary manipulation and that seeks to serve as an alternative to traditional government currencies, Ethereum on the other hand was built to be a kind of operating system for any number of custom assets and programs. ERC20 is a technical standard used for smart contracts on the Ethereum blockchain.

Again for simplicity we’re just considering gold here, and for that Paxos create/destroy gold tokens called PAXG, that are backed 1:1 by physical London gold bars. When you use your Paxos account to buy PAXG there is a charge, and unlike if traded (via itBit exchange) trading hours to buy/sell PAXG are limited. Purchases and sales of PAX Gold (PAXG) are only available during London gold market hours on paxos.com (open from Sunday 6pm ET through Friday 5pm ET; closed weekdays from 5-6pm ET and applicable gold market holidays). When markets are closed, orders cannot be placed on the Paxos platform. On their interface the "Trade" tab is to trade via the itBit exchange, that is 24/7, whilst the "PAXG" tab is to trade directly. Note that it is also possible to move PAXG directly within Paxos, peer to peer. So whilst you might not be able to directly trade PAXG out of hours, you could still trade the tokens via the ItBit exchange 24/7, that doesn't require anything further as its already incorporated within the Paxos account.

The physical gold associated with each PAXG is stored in London, audited and insured and PAXG tokens are 1:1 aligned with physical gold.

Whenever PAXG tokens are sent on Ethereum network, Paxos charges a small 0.02% fee of the amount of PAXG sent on the blockchain. 0.02% on-chain transaction fees are covered by users. For example, if you want to send 10 PAXG from one Ethereum address to another, and you want to ensure that the receiver gets at least 10 PAXG after fees, you should send at least 10.0020004001 PAXG total to cover the cost of the on-chain transaction fee. If you initiated a transfer of 10 PAXG, the receiver would get 9.998 PAXG after fees.

Storage fees: Paxos does not charge gold storage fees to its customers at this time.

Creation and Destruction fees: Whenever you buy or sell PAXG from your Paxos account (on either the wallet dashboard or PAX Gold pages), Paxos charges small fees to process both the creation and destruction of PAXG tokens (see fee schedule below). This includes all sales or conversions of PAX Gold to or from USD, gold bars or unallocated gold.

There’s a sliding scale of creation/destruction fee, from 2% for less than 2 tokens, so if the price of gold is for instance $2000 then that equates to for trades of less than $4000, down to 0.125% for 800+ tokens (around $1.6M value). At the $100K+ mark 50 to less than 75 tokens, the fees are 0.5%

Costs/fees are different if you buy/sell via itBit exchange, that I ignore here other than to say that there are no creation/destruction fees, but other costs/fees instead.

There are no ongoing fees for gold storage or insurance. Zip/nada/nothing further to pay. Consider for instance I open a Paxos account, credit it with a little over $100,000 and buy $100,000 worth of PAXG tokens with that, paying $30 to initially deposit USD into the account, and a 0.5% creation fee, where in effect the PAXG tokens I buy are backed by physical gold associated to those tokens. There is no gold movement, the actual value of that gold is recorded in the Ethereum network.
Some time later I sell $100,000 of PAXG tokens, and the physical gold associated to that is released, incurring another 0.5% cost in the way of ‘destruction’ cost. I withdraw the USD, incurring a $30 withdrawal cost against that.

I don’t know for sure, but suspect that there’s the additional 0.02% on-chain transaction for each of the buy and sell trade transactions. I also don’t know of what spreads there may be reflected in the price you are quoted in order to buy/sell, I would imagine that there is a spread, but likely a pretty tight spread due to the high liquidity/volumes. As I understand it you place the order, are given a price and have a 5 second window within which to accept that.

Unlike the likes of BullionVault, where deposits/withdrawals can only be via the same bank account, with PAXG you could transfer PAXG peer to peer with another who also had a Paxos account, or sell the PAXG tokens into a alternative crypto currency that in turn could be moved to another wallet/elsewhere. You can also redeem PAXG for physical gold, but that requires holding 430+ PAXG, the equivalent of 430 ounces of gold which is the upper permitted amount of ounces of gold within a single London vaulted gold bar, and the bar can only be moved to a alternative London vault, not shipped overseas. So a pretty limited option for the typical individual investor.

For larger amounts such as $100K+ Paxos seems to start being more cost efficient than BullionVault, whereas for smaller amounts Bullionvault looks to be more competitive/better. Of the two and Paxos has the greater flexibility such as selling PAXG into other crypto currency and moving that, without having to go through your regular bank account.

My suspicions are that over time BitCoin will decline whereas Ethereum will ascend, being more technical/sophisticated and better able to handle high volumes quickly, as well as being more regulated. As I understand it there is far more effort being expended in developing the Ethereum network. Paxos it would seem are aligning themselves to that and as such are more inclined to sustain rather than falling into history.

Risks include that of anything that involves counter-parties or that is stored online. Some like to move their crypto into hard wallets, offline storage, however there are risks there also, if you lose the key you’ve lost your claim to the assets. If you write down the 12 or 24 key recovery words for if the key is lost then anyone who discovers those words can recover and steal the assets with surprising speed/ease, even if the words aren’t recorded in order. Physical in-hand gold similarly has its own risks. For Paxos I’d personally prefer the direct on-platform method rather than going via the trading desk/exchange (itBit) – as that just adds further layers of risks. As risk can never really be truly eliminated a wise choice is to diversify, perhaps some each of physical in-hand gold, Bullionvault or similar, Paxos or similar.

[Smith1776]

Here are some of my notes/primer that I thought I'd share (no guarantee as to the accuracy)

...

Great write up.

It's also nice to see you posting about gold and not being inundated with senseless rubbish from that NiceUnparticularMan cretin.

[seajay]

One thing I am noticing is that when compared to other sources, PAXG in Pounds does seem to be priced lower than spot prices. StoneX that Paxos use as their partner for live streaming prices quote much the same as other sources/dealers, whilst they are all around 1% higher than the indicative price of PAXG. That may be down to being out of hours and in reflection of the downward trend in the price of gold in the lead up to market closure. I keep missing looking at the differences in-hours and suspect that they will align as otherwise that opens up significant arbitrage potentials that are unlikely to actually exist in practice.

[seajay]

Here are some of my notes/primer that I thought I'd share (no guarantee as to the accuracy)

...

Great write up.

It's also nice to see you posting about gold and not being inundated with senseless rubbish from that NiceUnparticularMan cretin.

Thanks. I'm on my third and final warning on Bogleheads, predominately a Vanguard promotion site/forum that dislike alternatives such as gold. Many prior good contributors to BH have stopped posting perhaps due to having been banned or in Larry Swedroe's (and HedgeFundies) case just simply giving up.

Did you see this post of mine? https://www.bogleheads.org/forum/viewto ... 1#p7444951 Where the three-fund style as attributed to JB in the 1970's was a suggestion being made back in the mid 1960's.

[Smith1776]

Here are some of my notes/primer that I thought I'd share (no guarantee as to the accuracy)

...

Great write up.

It's also nice to see you posting about gold and not being inundated with senseless rubbish from that NiceUnparticularMan cretin.

Thanks. I'm on my third and final warning on Bogleheads, predominately a Vanguard promotion site/forum that dislike alternatives such as gold. Many prior good contributors to BH have stopped posting perhaps due to having been banned or in Larry Swedroe's (and HedgeFundies) case just simply giving up.

Did you see this post of mine? https://www.bogleheads.org/forum/viewto ... 1#p7444951 Where the three-fund style as attributed to JB in the 1970's was a suggestion being made back in the mid 1960's.

Yeah, I remember Larry saying that BH had essentially become a religious site. He was spot on.

You're still in better graces with them than I. I was banned quite a long time ago lol! I still lurk as an unregistered member occasionally. Thanks for the link! Very interesting as usual!

[vnatale]

Here are some of my notes/primer that I thought I'd share (no guarantee as to the accuracy)

...

Great write up.

It's also nice to see you posting about gold and not being inundated with senseless rubbish from that NiceUnparticularMan cretin.

Thanks. I'm on my third and final warning on Bogleheads, predominately a Vanguard promotion site/forum that dislike alternatives such as gold. Many prior good contributors to BH have stopped posting perhaps due to having been banned or in Larry Swedroe's (and HedgeFundies) case just simply giving up.

Did you see this post of mine? https://www.bogleheads.org/forum/viewto ... 1#p7444951 Where the three-fund style as attributed to JB in the 1970's was a suggestion being made back in the mid 1960's.

Yeah, I remember Larry saying that BH had essentially become a religious site. He was spot on.

You're still in better graces with them than I. I was banned quite a long time ago lol! I still lurk as an unregistered member occasionally. Thanks for the link! Very interesting as usual!

For what did you get banned??!!!

[Smith1776]

For what did you get banned??!!!

For not buying into anti-gold propaganda spouted by a bunch of statists.

[vnatale]

For what did you get banned??!!!

For not buying into anti-gold propaganda spouted by a bunch of statists.

I think that this is the MOST political I have EVER witnessed you being in this forum!

[dualstow]

…
Did you see this post of mine? https://www.bogleheads.org/forum/viewto ... 1#p7444951 Where the three-fund style as attributed to JB in the 1970's was a suggestion being made back in the mid 1960's.

Very interesting post

[Xan]

For what did you get banned??!!!

For not buying into anti-gold propaganda spouted by a bunch of statists.

I think that this is the MOST political I have EVER witnessed you being in this forum!

Vinny, Smithers is describing the way he appears to the Bogleheads.

[vnatale]

For what did you get banned??!!!

For not buying into anti-gold propaganda spouted by a bunch of statists.

I think that this is the MOST political I have EVER witnessed you being in this forum!

Vinny, Smithers is describing the way he appears to the Bogleheads.

No, I reread it again and I interpreted it as him characterizing them as "statists". I read nothing about how they are characterizing him, other than he was guilty of not spouting the "party line".

[Smith1776]

No, I reread it again and I interpreted it as him characterizing them as "statists". I read nothing about how they are characterizing him, other than he was guilty of not spouting the "party line".

Yeah, I didn't want to really believe it at first, but the Bogleheads forum is a really weird mix between religious following, jingoism, and pseudo intellectualism.

[Smith1776]

I remember a foolish poster once said that you had to discount all of the 1970's performance for gold because gold wasn't "truly free floating" until the 1980s. No one called him out on it despite that being the dumbest statement anyone has ever made about investing. Like, conveniently he decides to start looking at gold performance right at its peak. How could gold not be "free floating" in the 1970s? Why else do you think the price was rising so rapidly? Because it was fixed and not "free floating"? Give me a break.

And he was accusing others of cherry picking data. Bunch of fools.

[D1984]

I remember a foolish poster once said that you had to discount all of the 1970's performance for gold because gold wasn't "truly free floating" until the 1980s. No one called him out on it despite that being the dumbest statement anyone has ever made about investing. Like, conveniently he decides to start looking at gold performance right at its peak. How could gold not be "free floating" in the 1970s? Why else do you think the price was rising so rapidly? Because it was fixed and not "free floating"? Give me a break.

And he was accusing others of cherry picking data. Bunch of fools.

Was he talking about all of the 1970s or just the 1970-1974 period? if the latter, he might have been (barely) justified; gold was indeed coming off a period of being price controlled at $35 an ounce from 1934 to early 1968 (although if you are interested I know of a way to kind of "get around" this and create a decent simulated return for how gold hypothetically might've done from, say, 1965 to 1974 had it not been controlled)....but if the former, gold prices were most assuredly free-floating during the 1975-1979 period and weren't controlled.

My bet is that he/she (the poster who said that the whole 1970s should be ignored) just didn't like how including the 1976-1979 period (which were pretty sweet years for gold returns) showed how gold could reduce SWR risk (and/or increase the sustainable withdrawal amount) vs a standard three-fund portfolio (since Bogleheads consider the three fund portfolio to be the be-all and end-all of portfolio design) and couldn't actually think of any logical and factual way to rebut it and so just preemptively decided that gold's return for the entire 1970s could and should safely be ignored.

What a dimbulb.

[Smith1776]

I remember a foolish poster once said that you had to discount all of the 1970's performance for gold because gold wasn't "truly free floating" until the 1980s. No one called him out on it despite that being the dumbest statement anyone has ever made about investing. Like, conveniently he decides to start looking at gold performance right at its peak. How could gold not be "free floating" in the 1970s? Why else do you think the price was rising so rapidly? Because it was fixed and not "free floating"? Give me a break.

And he was accusing others of cherry picking data. Bunch of fools.

Was he talking about all of the 1970s or just the 1970-1974 period? if the latter, he might have been (barely) justified; gold was indeed coming off a period of being price controlled at $35 an ounce from 1934 to early 1968 (although if you are interested I know of a way to kind of "get around" this and create a decent simulated return for how gold hypothetically might've done from, say, 1965 to 1974 had it not been controlled)....but if the former, gold prices were most assuredly free-floating during the 1975-1979 period and weren't controlled.

My bet is that he/she (the poster who said that the whole 1970s should be ignored) just didn't like how including the 1976-1979 period (which were pretty sweet years for gold returns) showed how gold could reduce SWR risk (and/or increase the sustainable withdrawal amount) vs a standard three-fund portfolio (since Bogleheads consider the three fund portfolio to be the be-all and end-all of portfolio design) and couldn't actually think of any logical and factual way to rebut it and so just preemptively decided that gold's return for the entire 1970s could and should safely be ignored.

What a dimbulb.

Heh. I appreciate your thoughtful reply and consideration of what exactly he meant. The discussion is kind of all over the last dozen or so pages of the "PP Continued" thread. He clearly said that all of the 1970s should excluded, and then wrote out a wall of rubbish to try and justify the position. That was really the beginning of the end for me participating in that forum.

[seajay]

When I backtest I assume a investor would have held T-Bills instead of gold pre 1934, silver between 1934 and 1975, gold since 1976.

[Smith1776]

When I backtest I assume a investor would have held T-Bills instead of gold pre 1934, silver between 1934 and 1975, gold since 1976.

Prudent.

[vnatale]

When I backtest I assume a investor would have held T-Bills instead of gold pre 1934, silver between 1934 and 1975, gold since 1976.

Prudent.

You are way too young plus a non-American to understand what you using that one word made me think of:

https://www.washingtonpost.com/opinions ... story.html

[Smith1776]

When I backtest I assume a investor would have held T-Bills instead of gold pre 1934, silver between 1934 and 1975, gold since 1976.

Prudent.

You are way too young plus a non-American to understand what you using that one word made me think of:

https://www.washingtonpost.com/opinions ... story.html

First I've read this! Definitely wasn't a part of the consciousness of my generation!

[welderwannabe]

I remember a foolish poster once said that you had to discount all of the 1970's performance for gold because gold wasn't "truly free floating" until the 1980s. No one called him out on it despite that being the dumbest statement anyone has ever made about investing. Like, conveniently he decides to start looking at gold performance right at its peak. How could gold not be "free floating" in the 1970s? Why else do you think the price was rising so rapidly? Because it was fixed and not "free floating"? Give me a break.

And he was accusing others of cherry picking data. Bunch of fools.

And those same folks ignore the fact that as long as we have a federal reserve who can set the overnight rate, decide rates on excess deposits, provide a reverse repo market, and outright buy bonds such as MBS...all things which effectively don't allow the dollar itself to be free floating.