PMGOLD ?

Discussion of the Gold portion of the Permanent Portfolio

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stuper1
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PMGOLD ?

Post by stuper1 » Sat Mar 09, 2013 9:54 am

To set up my PP, I'm planning to hold a little physical gold, and split up the rest between two gold funds, probably IAU and one other.  I've been looking into PMGOLD traded on the Australian Stock Exchange.  They list an expense ratio of 0.15%, but it actually starts at 0.075% for less than 13.34 oz of gold and increases up to a maximum of 0.15% as you buy more.  For my purchase level of around $50,000, the expense ratio would be about 0.12%, which is half of the IAU fee.  I know I'll pay a foreign transaction fee at a brokerage, but that's a one-time fee of less than 0.1%, and I'll use IAU for rebalancing.  PMGOLD will offer some geographic diversification, and the Perth Mint has been around for 115 years or so, which is a good track record.

Hopefully my 401k brokerage window will allow ETF transactions on a foreign stock exchange.  I'm still waiting to find out.  If not, I'll have to do it in a Roth IRA account, which I know is less than ideal from a tax perspective, but I'm willing to sacrifice that if needed.  The only catch I can think of is that I think I saw something on one of the brokerage websites saying that they don't allow foreign transactions in an IRA account.  I'm not sure if that was just their rule, or if the government doesn't allow foreign transactions in an IRA account.  Does anyone know the answer to this?

Also, if anyone sees any flaws in my plan, please let me know.  Thanks!
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Re: PMGOLD ?

Post by pugchief » Sat Mar 09, 2013 12:13 pm

Does PMGOLD constitute a PFIC requiring form 8621?
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Re: PMGOLD ?

Post by bronsuchecki » Sun Mar 10, 2013 4:29 am

stuper1 wrote:They list an expense ratio of 0.15%, but it actually starts at 0.075% for less than 13.34 oz of gold and increases up to a maximum of 0.15% as you buy more.
That happens because we collect the 0.15% management fee by deducting units from investors, rather than selling gold backing the units. Because we deduct, we do it at a rate of 1 unit for every 667 units held (=0.15%) so we divide a holding by 667 and then have to round down to a whole unit to deduct. Hence the lower effective rate for smaller holdings.
stuper1 wrote:PMGOLD will offer some geographic diversification, and the Perth Mint has been around for 115 years or so, which is a good track record.
Plus we have redeemability into any of our coin or bar products, although this may be difficult to do via a foreign broker.
stuper1 wrote:Hopefully my 401k brokerage window will allow ETF transactions on a foreign stock exchange.
The fact that PMGOLD is not a conventional stock but a structured product there may be some problems if they aren't that flexible.
Disclosure: I work for the Perth Mint. What I say is done in a personal capacity and is not endorsed by the Mint.
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Re: PMGOLD ?

Post by sophie » Sun Mar 10, 2013 8:35 am

This might be a dumb question, but how do you buy PMGOLD shares from a US brokerage?

Fidelity doesn't recognize pmgold or pmgold.ax.
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Re: PMGOLD ?

Post by stuper1 » Sun Mar 10, 2013 9:23 am

I think I forgot that I would have to pay Australian taxes when it comes time to sell, along with U.S. taxes (unless it's in my Roth IRA).  I think that is going to make this a no go, unless I'm missing something.  Does anybody know what the tax consequences would be?
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Re: PMGOLD ?

Post by MachineGhost » Sun Mar 10, 2013 6:46 pm

stuper1 wrote: I think I forgot that I would have to pay Australian taxes when it comes time to sell, along with U.S. taxes (unless it's in my Roth IRA).  I think that is going to make this a no go, unless I'm missing something.  Does anybody know what the tax consequences would be?
There might be withholding taxes by Australia and if it is in a IRA, you will have no way to recoup it via mutual tax treaty on your tax return.
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bronsuchecki
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Re: PMGOLD ?

Post by bronsuchecki » Sun Mar 10, 2013 7:21 pm

stuper1 wrote: I think I forgot that I would have to pay Australian taxes when it comes time to sell, along with U.S. taxes (unless it's in my Roth IRA).  I think that is going to make this a no go, unless I'm missing something.  Does anybody know what the tax consequences would be?
Now this isn't tax advice nor am I an expert, but our tax office does not require the Perth Mint to withhold anything on gold held by investors with us in our Depository, so I can't see why this would apply to PMGOLD or Australian equities in general. I think you have to be a resident in Australia to have to pay tax.
Disclosure: I work for the Perth Mint. What I say is done in a personal capacity and is not endorsed by the Mint.
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Re: PMGOLD ?

Post by goodasgold » Mon Mar 11, 2013 10:48 am

Hello Bron:

The PMGold option sounds very interesting. But in considering this option, instead of all of us wading through a long prospectus, could you please summarize PMGold's total expenses, including management fees, taxes, redemption fees, brokers' commissions, etc.?

Thank you, and I join others on this forum in appreciating the PMGold option.
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Re: PMGOLD ?

Post by bronsuchecki » Mon Mar 11, 2013 8:26 pm

The fees are pretty straightforward, just 0.15% management fee and a buy/sell spread on the market of usually 1%. There are no sales taxes in Australia on gold.

Redemption fees (ie collecting physical) depends on what size coin/bar you take and are at our usual retail prices, but I assume this is not something overseas investors are going to do.

As to brokers fees that I don't know as it depends on your country and who your broker is.

The ISIN for PMGOLD is AU000PMGOLD8
Disclosure: I work for the Perth Mint. What I say is done in a personal capacity and is not endorsed by the Mint.
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Re: PMGOLD ?

Post by stuper1 » Tue Mar 12, 2013 8:04 am

Newbie question here.  For PMGOLD, Bron mentions the 0.15% management fee and a 1% buy/sell spread.  I didn't know about the 1% buy/sell spread.  I figured that was part of the management fee.  To compare apples to apples with IAU, which has a 0.25% expense ratio, is there a buy/sell spread, or any other fee, associated with IAU besides the 0.25% expense ratio?
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Re: PMGOLD ?

Post by rickb » Tue Mar 12, 2013 11:16 am

stuper1 wrote: Newbie question here.  For PMGOLD, Bron mentions the 0.15% management fee and a 1% buy/sell spread.  I didn't know about the 1% buy/sell spread.  I figured that was part of the management fee.  To compare apples to apples with IAU, which has a 0.25% expense ratio, is there a buy/sell spread, or any other fee, associated with IAU besides the 0.25% expense ratio?
There's a buy/sell (bid/ask) spread for all ETFs.  IAU's averages about 0.06% (according to http://www.indexuniverse.com/sections/b ... nder-.html).

I haven't read the PDS (see http://www.perthmint.com.au/investment_gold_asx.aspx), but if the summary is correct and it is call options, then any comparison of PMGOLD with an ETF is not apples to apples. I'm not a big fan of the ETFs but each share of IAU at least indirectly corresponds to 1/100th (or so) ounce of gold that the ETF theoretically owns (there's currently about 700M shares, so there's supposed to be about 7M ounces of gold stored somewhere the ETF can point to and say "yup, that's ours - you can't trade your shares for it, but there it is").  Perhaps Bron can clear this up, but it looks like each share of PMGOLD is literally nothing more than a piece of paper (a call option) giving you dibs on somebody else's gold.
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Re: PMGOLD ?

Post by bronsuchecki » Tue Mar 12, 2013 7:52 pm

To clarify, the buy/sell spread is not a fee we get, by that I meant the difference between the buying and selling prices on the exchange. It is a factor in the total end cost an investor pays. IAU and GLD have very low buy/sell spreads compared to PMGOLD, which does not have the volume of trading those products do.

Often PMGOLD's spread is better than 1%, but I've used 1% as that is what our market maker always quotes at so you are guaranteed to get that as a worst case, but you may be able to do better.

Purely from a cost point of view (ignoring risk), you would need to hold PMGOLD for a few years before the saving from the ongoing management fee outweighs the higher buy/sell spread.

rickb - I think it is funny to consider the other ETFs as not being "a piece of paper"! When we were designing PMGOLD we had a choice of creating a company/trust or creating a "structured product". The reason we went with the structured product way (ie defining it as fully paid call option for physical) was that it had lower operating costs (hence the 0.15%) and it allowed funds who could not hold physical (or buy an ETF with a trust holding physical) to buy it.

While it is defined as a call option, you pay the full gold amount upfront and we use that to buy gold to 100% back it. PMGOLD is effectively a securitised version of our unallocated, ie it is backed by metal we use in our business. In addition, that liability to PMGOLD holders also comes under our Government guarantee.
Disclosure: I work for the Perth Mint. What I say is done in a personal capacity and is not endorsed by the Mint.
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