PMGOLD ?

Discussion of the Gold portion of the Permanent Portfolio

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rickb
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Re: PMGOLD ?

Post by rickb » Tue Mar 12, 2013 11:35 pm

bronsuchecki wrote: 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.
Are you saying it's deliberately set up to avoid owning gold, so that funds that (for whatever reason) are prohibited from owning gold can (sort of) pretend to own gold?  If it's set up so that it doesn't actually own any gold, and what I want is to own gold, then why on earth would I ever buy it?

I still haven't read the PDS, and may not.  Frankly, the ETFs are complicated enough.  Why does it have to be so complicated?  Doesn't Perth already effectively have 0 inventory costs (by selling unallocated)?  What is the point of yet another mechanism?  Is Perth's working gold supply now effectively sold twice, once as unallocated and again as PMGOLD - and you're gambling that the holders of unallocated and the holders of PMGOLD won't both want their gold at the same time? 

If the music stopped, right now, how many chairs really exist?  Just as many as the number of players?  Half as many as the number of players?  Less than that?

I don't mean to be rude, but PMGOLD strikes me as something I wouldn't touch with a 10 foot (or 3 meter) pole.  And, it makes me seriously wonder about Perth's unallocated as well.
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Re: PMGOLD ?

Post by Pointedstick » Tue Mar 12, 2013 11:39 pm

rickb wrote: Frankly, the ETFs are complicated enough.  Why does it have to be so complicated?

[...]

If the music stopped, right now, how many chairs really exist?  Just as many as the number of players?  Half as many as the number of players?  Less than that?
Bingo. That's why physical gold in your own possession is important. You're losing out on a lot of its disaster insurance properties if you can't be sure your own policy will survive the disaster.
Human behavior is economic behavior. The particulars may vary, but competition for limited resources remains a constant.
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bronsuchecki
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Re: PMGOLD ?

Post by bronsuchecki » Wed Mar 13, 2013 1:02 am

I said it was a "version" of our unallocated, not that is was unallocated sold twice.

If someone buys 10 ounces of unallocated directly from us in our Depository, we go out and buy 10oz of gold and use that in the factory. If someone else buys 1000 PMGOLDs, we go out and buy 10oz of gold and use that in the factory. We then have 20oz of physical in our factory and owe 10oz to our Depository client and 10oz to our PMGOLD holder.

In fact PMGOLD is much simpler in structure than and ETF, as the only people involved are the market maker and the Perth Mint. It is a simple contractual right you have to call for physical gold directly on the Perth Mint. With and ETF you have a Sponsor, Trustee, Custodian and Authorized Participants with you holding shares in a Trust that actually owns the gold. See http://www.perthmintbullion.com/au/blog ... anics.aspx where I discuss some of the issues with ETFs.

The point of another mechanism was that some investors prefer to use the stock exchange to buy gold, as it does not require them to open an account directly with us and they can have it in one place along with their equity investments.
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 » Wed Mar 13, 2013 8:12 am

Is there a way of seeing what the buy/sell spread is at any given time, so I can try to time my purchase when it is low?

Will the buy/sell spread when I go to sell (hopefully many, many years down the road) affect my final total fees for this portion of my gold?
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Re: PMGOLD ?

Post by goodasgold » Wed Mar 13, 2013 9:08 am

The expenses of PMGold are highly attractive. In fact, they are the lowest of any gold investment I know of.

But I am not an Australian citizen, and the downside is that PMGold is denominated in Australian dollars. Since exchange rates vary over time, non-Australians investing in PMGold are subject to currency risk.

I remember traveling in South America about 12 years ago. I met an Australian who complained bitterly that the value of the Australian dollar had plummeted to the point that it was only worth 50 cents in U.S. dollars. Now, in 2013, the Australian dollar is very strong, but this situation could change rapidly. If the Chinese economy tanks, for example, Australia's natural resource-based economy would fall too, with dire consequences for the value of the Ozzie dollar.

So I reluctantly conclude that PMGold is not for me. But PMGold would be a great buy if it could establish a USD denominated fund, as is done by some of the Canadian gold ETFs which market USD denominated investments.
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Re: PMGOLD ?

Post by bronsuchecki » Wed Mar 13, 2013 7:10 pm

stuper1 - any online broker should show both bid and ask for any exchange quoted product/stock. Note PMGOLD is traded in Australian hours.

goodasgold - when you buy PMGOLD or any ETF on any market you do not have any currency risk because you are holding a product denominated in ounces, not AUD or USD or any other currency. Where the ETF trades does not effect you.

Consider these two points in time:

On Feb 18 2009 AUD gold price was $1532; AUD/USD FX rate was 0.6389
On Nov 25 2009 AUD gold price was $1279 and AUD/USD FX rate was 0.9250

(note if Aussie dollar weakens the AUD gold price goes up, and vice versa).

From a US investors point of view, when buying on Feb 18 their broker converts $1532 @ 0.6389 into USD 979. That is what you pay and what you get is 1 ounce.

When you sell, the broker converts $1279 @ 0.9250 into USD 1183. So you made $204 even though the Aussie price of gold went down.

You're missing the point that gold is traded in USD - it is foreign investors who have exposure to their local currency's impact on their local gold price.
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 » Wed Mar 13, 2013 7:54 pm

Bron, thanks for all the good info.  I am very new to this subject, so please forgive me if I ask silly questions.  My broker can show me the bid/ask spread when I buy now, but is my total fee for that gold allotment also going to depend on the bid/ask spread at the time I sell years down the road?
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Re: PMGOLD ?

Post by bronsuchecki » Thu Mar 14, 2013 12:46 am

stuper1 - under the Australian Securities Exchange rules we have to maintain fair buy and sell prices for PMGOLD at all times. We have contracted Deutsche Bank to do that for us (as we don't have direct access to the ASX) and they always have a bid and ask in the market at all times. So it is not like some closed end fund where you are at the mercy of the market and the price could go to a discount to fair value.
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 » Thu Mar 14, 2013 7:56 pm

bronsuchecki wrote: stuper1 - any online broker should show both bid and ask for any exchange quoted product/stock. Note PMGOLD is traded in Australian hours.

Thanks, Bron, for clarifying this point. My next inquiry is how to buy PMGOLD through the ASX. I called my broker, Scottrade, and they said they could not assist in this purchase. Any suggestions as to available U.S. brokers would be appreciated.
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bronsuchecki
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Re: PMGOLD ?

Post by bronsuchecki » Thu Mar 14, 2013 9:18 pm

I'm not really familiar with the US brokerage business, so don't know who offers access to overseas stock exchanges.
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 MachineGhost » Thu Mar 14, 2013 11:11 pm

goodasgold wrote: Thanks, Bron, for clarifying this point. My next inquiry is how to buy PMGOLD through the ASX. I called my broker, Scottrade, and they said they could not assist in this purchase. Any suggestions as to available U.S. brokers would be appreciated.
E*Trade probably has access.  I remember seeing advertising about it.
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Re: PMGOLD ?

Post by smurff » Thu Mar 14, 2013 11:24 pm

Interactive Brokers also offers access to overseas exchanges, including ASX.
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