GTU for a large gold position?

[jason]

Hi,

I have $6 million to invest in a PP due to a recent sale of a business.  After doing a lot of research and reading in this forum, I decided that GTU was my best option for "paper gold".  But it appears it might be hard to buy my 25% gold position ($1.5 million) in GTU because GTU's daily volume is usually pretty low.  Average volume is around 88,000 shares and today's volume was only around 27,000 shares.  Is it a bad idea to buy $1.5 million worth of GTU?  Will the low volume make rebalancing difficult?  Does anyone have any advice on how to buy it without driving up the price on myself too much?  I was thinking about putting half in GTU and half in PHYS, but I read that PHYS can leave me with a tax bill when there are gold redemptions by other investors that trigger capital gains taxes, so I crossed PHYS off my list.

Thanks!
Jason

[Pointedstick]

Have you settled on paper gold for your entire gold position? For 1.5mm, you could buy some 400oz good delivery bars! Maybe two bars and the rest in smaller bars and coins for rebalancing.

[Fradika]

If you're set on paper gold, why not IAU?

[rhymenocerous]

It does seem like you will run into problems buying and selling a large number of shares for this fund given the low average volume.  I suspect you are interested in GTU due to the favorable tax treatment of being able to pay the lctg rate on any gains rather than the collectibles tax rate.  What if you only held 5%, or $300k, in GTU and bought the rest of your gold directly?  If you need to rebalance, you will tap this amount first to get the favorable tax treatment.

[sophie]

Would that more of us had that problem :-).  Congratulations on your accomplishment.

Completely agree with PointedStick.  With that kind of a nest egg you'd be far better off with physical gold rather than paying for an ETF with expense ratios of 0.25 - 0.45-ish.  400 oz gold bars have much less of a markup than coins.  Coins would still be useful for 1/4 - 1/3 of the total, to allow for easy rebalancing.  Alternatively, you might want to take a chunk of that money (like maybe half) and invest it in gold bullion overseas.  With this amount you could open an account directly with the Perth Mint, for example.

There are other reasons why someone with a high net worth should consider a physical gold investment.  Read Harry Browne's books, listen to his radio show, or look at Medium Tex's and Craig's Permanent Portfolio book for useful discussions on the topic.

[jason]

Thanks for all of the great feedback.  The reason why I wanted GTU, in particular, is that it is supposedly safer than IAU and GLD.  There is a lot of information online indicating that IAU and GLD may not have the gold they are supposed to have.  They lease their gold to others and some people say the numbers don't add up, so they must be leasing the same pieces of gold to multiple people, or something to that effect, and they are both houses of cards that could collapse.  Additionally, in the unlikely event there is a gold confiscation, GTU may not be affected because I would not be owning gold - I would be owning shares of a company in Canada that owns gold.  So, it could make the difference between keeping it or not.  Of course, if Canada confiscates gold and the US does not, then I would end up regretting buying GTU.

I did speak to to the Perth Mint a short time ago and that sounds pretty good.  But I don't think I feel comfortable putting 100% of my gold in Western Australia.  Plus, the fee is much higher than GTU at 1% per year for $250,000 to $1 million of gold storage.  I was thinking of putting $250K worth of gold there, mainly for international diversification.

Goldmoney and BullionVault seem OK, but, because they do not offer direct ownership, I would have to report that gold to the IRS.  Goldmoney is on the Island of Jersey, which makes me a bit nervous, because if I somehow get screwed, I'm not sure how much recourse I would have.

I am very interested in buying gold bars, but it makes me nervous because I know so little about it and have never bought physical gold before.  I definitely do not want to store it in my house, which could put me and my family at risk. How/where do most people on this forum buy and store physical gold?  How do the fees work?

I have read both HB's Fail-Safe Investing and CraigR's PP book, and they are both excellent.

Thanks!
Jason

[Pointedstick]

I have never had to store a 400 oz good delivery bar anywhere (wish I had that problem!) but a large bank safe deposit box is probably your best bet. If you've never owned bullion before, I might recommend picking up a few coins just to get a feel for what it's like. As others here have said before and are likely to say here, there really is something that can "click" in your mind when you're holding a small piece of metal worth thousands of dollars. But definitely not a great idea to store 400 oz of gold bullion in your house, yeah. 

[jason]

Thanks Pointedstick.  Do you have any suggestions regarding how I can get the gold from the bullion dealer to the bank in order to place it in the safety deposit box?  I would be very scared that someone would follow me from the bullion dealer and mug me when I arrived at the bank, etc.  The idea of driving around town with $1 million worth of gold in my possession is scary. 
Also, if the bank had a fire and burned to the ground, or if my safety deposit box got broken into somehow, couldn't I lose all my gold?
I am also afraid of ordering gold by mail because I am afraid the UPS driver, for example, could tell his friend about my package and his friend could come to my house and rob me.

[Pointedstick]

This is definitely outside the realm of my expertise now, but a professional gold dealer should be able to give you those kinds of details. If you try to buy a good delivery bar from goldmart.com, for example, they instruct you to call them up to complete the purchase. Presumably you'd be speaking to an expert who could guide you through the process.

As for the risk of the bank burning to the ground, you could always insure the gold, or store it at different banks.

[rickb]

Insurance (for coins, not sure they offer it for 400 oz bars) is discussed in this thread: http://gyroscopicinvesting.com/forum/ht ... ic.php?t=0

$1.5M in coins (at current prices) is about 1000 coins, i.e. 2 "monster boxes".  A monster box of US Gold Eagles will fit comfortably in a 5x10 safety deposit box.  One option would be to buy two monster boxes and store them in safety deposit boxes at two different banks (perhaps in different cities), and insure the coins. 

Is it more odd to think of $1.5M in the form of 1000 gold coins (which you can hold in your hands if you want - it would be quite heavy) or in the form of a statement from some broker who might turn into tomorrow's MF Global?

If you're nervous about the delivery, you could have as many coins as you're comfortable having delivered at one time delivered every (say) week until you have the total amount.  You can buy empty US Eagle monster boxes (http://www.apmex.com/product/43963/empt ... er-box-red) - tubes of US Eagles (or Krugerrands) will fit in these boxes.  Maple Leafs and Vienna Philharmonics are slightly smaller (99.99% gold rather than 92% gold).

Current markup on US Eagles is about $50-$70 per coin.  As others have noted, markup on large bars is less (e.g. $15/oz for 1 kilogram bars).  An issue with large bars is that you'll almost certainly need to have the bar assayed if/when you want to sell it.  Bars are considerably more compact than coins, for example a 400 oz bar probably comfortably fits in a 3x5 safety deposit box.  If you're buying a 400oz bar you might be able to have it delivered directly to a bank where you want to store it (I expect the bank manager would be happy discuss this with you).

Another consideration is what will ultimately happen.  Is this an asset you expect to hold until you die?  Will it need to be divided among your heirs?  Large bars have less markup, but they're really not very divisible.

[Fradika]

Never having done any of the things I am about to suggest, here are some (free) suggestions. I also wanted to mention Valcambi combibars, just as one option to help you get your feet wet in physical gold ownership. <https://www.valcambigold.com/>. You might also look into New Zealand Mint <www.nzmint.com>. For one stop shopping, though, Perth Mint is absolutely the way to go, in allocated storage.  The gold is backed by the government of Australia, from what I understand. I'd imagine that your best bet is probably to hold 5% in physical coins and 20% in international storage, following my understanding of the PP philosophy. For the international storage, for convenience, I'd pick only one place (in your case, perth). I'd imagine (and others on the forum surely know better than me) Perth Mint has experience dealing with huge accounts. 

[jason]

Thanks for the great feedback!  I'm thinking I could diversify by putting around 50% of my gold allocation in GTU, 25% in the Perth mint, and 25% somewhere else.  I'm thinking about Kitco, perhaps.  They have what sounds like an extremely cheap program with their pooled storage accounts.  The premiums for buying and selling are only around 1%, and there are no annual storage fees!  This seems like it beats places like Goldmoney, hands down!  Because it is pooled storage, I would have to report it to the US government because it is not direct ownership. Kitco has segregated storage for 0.85%, which seems a bit expensive.  For that much cost, I would prefer to use the Perth Mint because it is government backed.  I got really excited when I read about the The Royal Canadian Mint Prestige Account (RCMPA) program with Kitco that was government backed, but I called Kitco and they said the program is suspended and they are not accepting new accounts  
Does anyone have any experience with the APMEX and their Citadel storage?  They charge 0.55% with fairly low premiums for purchases.  The gold is stored in the US by Brinks, so I'm guessing it will not protect against confiscation, but it will protect against a paper gold collapse.
Since Goldmoney accounts are pooled and must be reported to the IRS each year, aren't APMEX or Kitco much better options since they are not on the Island of Jersey?

[Fradika]

Citadel is new, and I would avoid it for this reason alone. I've never used it, though, so perhaps some users can share first hand experiences

[Ad Orientem]

Hi and a belated welcome to the forum. Congrats on the fruits of your hard work. You have an enviable "problem."

First I concur with most of the advice above, Go physical until (may you be so fortunate) you can't conveniently store it all in a few safe deposit boxes. At that point, I would start to think about an account at the Perth Mint or maybe IAU. I suggest sticking to small bars and coins. Try to avoid the super popular coins where the premiums are so steep. If the price is more than 5% over spot I'd look for something cheaper. 10 oz. bars have the advantage of being portable, convenient for rebalancing a large gold position, and generally much cheaper than coins.

For security concerns, you will want to split your stash into at least two, but I suggest three SD boxes, at different banks. Safe deposit vaults are usually fireproof. But if you live in an area prone to certain types of natural disasters you will absolutely want insurance. I recommend it in any case.

On a side note, I differ from most others on this forum who consider GTU and similar funds as superior to ETFs. Closed ended gold funds DON'T TRACK THE PRICE OF GOLD. Their premiums are heavily influenced by speculative sentiment and can drastically skew your PP. I believe that closed ended bullion funds are not suitable for a PP, though they may be fine for speculative investing. So my advice is go physical or go with IAU.

Contrary to a lot of the hysteria in the gold bug community IAU does not lend its bullion out and it is subject to rigorous audits. That doesn't mean there aren't potential problems. But the conspiracy nuts who think everything that isn't physical gold is a fraud are, as usual, way off base.

[jason]

I know this is open to debate, but I have researched this a lot and I believe there is quite a bit of evidence that IAU does not have all of the gold in its vaults, and they may be operating with fractional reserves.  I do not think these conclusions are being reached due to paranoia, but rather due to the fact that the numbers don't add up.  The word audit has a lot of different meanings and I have been unable to find any evidence that IAU has had an audit showing that they have 100% of the gold in their vaults. 

Regarding the discount/premium swings that GTU experiences, over time they tend to balance out, and GTU has a 97% correlation to the price of gold.  I should add that GTU offers some international diversification, as well, and has the potential to possibly (although not necessarily) protect against US gold confiscation, since GTU shareholders to not directly own any gold.

I'm not very keen on holding gold in bank safety deposit boxes because of the potential exposure to confiscation.  It's not like it hasn't happened before in the US.  I think it's a good idea to hold a little bit in safety deposit boxes, but not a huge amount, for this reason.

Right now, I am looking at the Perth Mint, and I also came across Sprott's gold storage solution here
http://www.sprottmoney.com/store-with-us-canada

Is anyone familiar with Sprott's Canadian gold storage?  It appears to be fairly new.  The fees are much lower than the Perth Mint.  I would think that Sprott would not want to default on his gold storage considering he has billions of dollars under management in his hedge funds and mutual funds.  If Sprott screwed people out of their gold, it would surely ruin his name and reputation and could destroy his other businesses, so I think it is highly unlikely he would let that happen (although it is still possible).

[Pointedstick]

IMHO, confiscation risks are overblown. Now that gold has no nominal connection to the dollar, there's no reason to confiscate or restrict gold save for its use for anonymous or "off-grid" wealth storage. Now Congress being made up of idiots, it's possible they'll go after that, but if they do, then I think the gold in your safe deposit box will be more safe then the gold in a big public vault rented by the gold ETFs. Don't you think that's where they'd head first if they really wanted to steal people's gold? In order to get gold stored in bank safe deposit boxes, they'd need a blanket order to examine the contents of every safe deposit box in America since the banks don't keep records of what's in them. Anything's possible, I suppose, but that seems awfully unlikely.

[Libertarian666]

IMHO, confiscation risks are overblown. Now that gold has no nominal connection to the dollar, there's no reason to confiscate or restrict gold save for its use for anonymous or "off-grid" wealth storage. Now Congress being made up of idiots, it's possible they'll go after that, but if they do, then I think the gold in your safe deposit box will be more safe then the gold in a big public vault rented by the gold ETFs. Don't you think that's where they'd head first if they really wanted to steal people's gold? In order to get gold stored in bank safe deposit boxes, they'd need a blanket order to examine the contents of every safe deposit box in America since the banks don't keep records of what's in them. Anything's possible, I suppose, but that seems awfully unlikely.

Good point. I'm sure no court would ever approve a blanket search warrant like that! 

[steve]

I like GTU for a number of reasons, most have already been mentioned. From what I have seen the premium/discount have worked to the advantage of a PP who are buyers when Gold is down and sellers when it is up.  Besides GTU I like to have some physical gold, when I am a buyer of physical gold, I go to a reputable dealer that I  have done business before, and leave with gold in hand. They have an armed guard that will escort you to your car. Most people recommend 1oz eagles but I have no problem with the pamp swiss 1oz bars, A sealed box has 25 1oz bars each individual sealed with assay card. They are also easy to sell and works of art.

[MediumTex]

IMHO, confiscation risks are overblown. Now that gold has no nominal connection to the dollar, there's no reason to confiscate or restrict gold save for its use for anonymous or "off-grid" wealth storage. Now Congress being made up of idiots, it's possible they'll go after that, but if they do, then I think the gold in your safe deposit box will be more safe then the gold in a big public vault rented by the gold ETFs. Don't you think that's where they'd head first if they really wanted to steal people's gold? In order to get gold stored in bank safe deposit boxes, they'd need a blanket order to examine the contents of every safe deposit box in America since the banks don't keep records of what's in them. Anything's possible, I suppose, but that seems awfully unlikely.

Also consider the tiny, tiny, tiny number of people who actually have gold in safe deposit boxes.

[murphy_p_t]

based on the size of your portfolio...maybe you should be interviewing directors of proposed suppliers/storage options...i think you are probably of a portfolio size where company directors would welcome the opportunity to answer your concerns. You may even be able to negotiate better pricing.

Having said that, I would not make the decision solely based upon the storage fee rate. I seem to recall that GLD has a theoretical zero storage fee, yet I think you are correct in ruling out that as a solution. Cheapest is not always best.

Also, I think you will do well to consider one of the reasons for gold in the PP...to have assets totally outside the financial system. GLD, IAU, GTU etc don't offer that feature.

You might check into jsmineset.com and his suggested guy, egon von greyerz (sp?) as someone to consider.