Is PHYS a good idea?

[jason]

Hello everyone,

I currently have 80% of my PP gold allocation in GTU, and 20% in IAU.  I am rethinking my IAU holding as I have concerns that they may use fractional reserves, and I am thinking about swapping my IAU holding for PHYS (I still want to remain diversified from GTU, just to be safe).  I originally chose GTU over PHYS because PHYS allows redemptions, and the PHYS shareholders have to pay any capital gains taxes incurred by PHYS caused by the redemptions. 

Only investors with a large investment (a full gold bar) are eligible to redeem PHYS shares for gold, and I called PHYS and asked if they could tell me what % of the shares currently held are redeemable for gold, and they couldn't tell me (he said it isn't tracked), so it's not possible to predict a worst case scenario for PHYS in regards to the capital gains taxes incurred by the shareholders of the fund.

So, I have a few options at this point:
1) do nothing
2) swap IAU for PHYS
3) swap IAU for GTU, but then I will be 100% GTU
4) swap IAU for SGOL, if SGOL is safer than IAU, which I don't know.

Does anyone have any recommendations? By the way, I have a large gold holding, so I would qualify for PHYS gold bar redemptions if I put most of my gold allocation into PHYS, but I didn't really see the point of that, plus then I would be much more affected by any capital gains incurred by the fund.

Thanks!

[Libertarian666]

Hello everyone,

I currently have 80% of my PP gold allocation in GTU, and 20% in IAU.  I am rethinking my IAU holding as I have concerns that they may use fractional reserves, and I am thinking about swapping my IAU holding for PHYS (I still want to remain diversified from GTU, just to be safe).  I originally chose GTU over PHYS because PHYS allows redemptions, and the PHYS shareholders have to pay any capital gains taxes incurred by PHYS caused by the redemptions. 

Only investors with a large investment (a full gold bar) are eligible to redeem PHYS shares for gold, and I called PHYS and asked if they could tell me what % of the shares currently held are redeemable for gold, and they couldn't tell me (he said it isn't tracked), so it's not possible to predict a worst case scenario for PHYS in regards to the capital gains taxes incurred by the shareholders of the fund.

So, I have a few options at this point:
1) do nothing
2) swap IAU for PHYS
3) swap IAU for GTU, but then I will be 100% GTU
4) swap IAU for SGOL, if SGOL is safer than IAU, which I don't know.

Does anyone have any recommendations? By the way, I have a large gold holding, so I would qualify for PHYS gold bar redemptions if I put most of my gold allocation into PHYS, but I didn't really see the point of that, plus then I would be much more affected by any capital gains incurred by the fund.

Thanks!

Why would there be any capital gains if someone redeemed their shares for a gold bar? That sounds like getting a share certificate for a holding at a brokerage, which isn't a taxable event.

[fnord123]

Before getting too committed to PHYS or any Sprott offering, I suggest reading the following article. If anything, some of the more well known funds like GLD are actually more transparent and reliable than PHYS:

http://kiddynamitesworld.com/when-your- ... etfs-work/

[jason]

Why would there be any capital gains if someone redeemed their shares for a gold bar? That sounds like getting a share certificate for a holding at a brokerage, which isn't a taxable event.

When PHYS opened, they had to buy a bunch of physical gold.  If you redeem your PHYS shares for physical gold, they are essentially selling the physical gold to you at that time.  If they sell it to you at a price that is higher than what they paid (the price you are paying is the value of your PHYS shares at the time of redemption, I would think), then PHYS would experience a capital gain and taxes would be due.  Remember that PHYS operates as a company, not an ETF, so if PHYS buys gold and sells it at a profit (via redemptions), it owes capital gains taxes like any other business.

[jason]

Before getting too committed to PHYS or any Sprott offering, I suggest reading the following article. If anything, some of the more well known funds like GLD are actually more transparent and reliable than PHYS:

http://kiddynamitesworld.com/when-your- ... etfs-work/

I would take that article with a grain of salt.  The author of the article is under the assumption that the ETFs operate exactly as they are supposed to. 

[fnord123]

I would take that article with a grain of salt.  The author of the article is under the assumption that the ETFs operate exactly as they are supposed to.

The exact same skepticism should be applied to Sprott's funds.  Either you assume that all trusts and ETFs follow the law & their trust documents/prospectuses, or one doesn't.  If you assume that trusts (Sprott) and ETFs (GLD, IAU) follow their trust documents/prospectus, then a strong case is made that Sprott isn't an especially good place to be.

If one doesn't believe ETFs will follow their prospectuses then you should similarly believe trusts won't follow their trust documents. In that case, investing in Sprott's funds is just as bad an idea as investing in GLD or IAU.  Stick with physical in this case.

The only argument I can see for liking Sprott's Trust over an ETF is if one thinks Sprott himself is an especially good person. 

[Libertarian666]

I would take that article with a grain of salt.  The author of the article is under the assumption that the ETFs operate exactly as they are supposed to.

The exact same skepticism should be applied to Sprott's funds.  Either you assume that all trusts and ETFs follow the law & their trust documents/prospectuses, or one doesn't.  If you assume that trusts (Sprott) and ETFs (GLD, IAU) follow their trust documents/prospectus, then a strong case is made that Sprott isn't an especially good place to be.

If one doesn't believe ETFs will follow their prospectuses then you should similarly believe trusts won't follow their trust documents. In that case, investing in Sprott's funds is just as bad an idea as investing in GLD or IAU.  Stick with physical in this case.

The only argument I can see for liking Sprott's Trust over an ETF is if one thinks Sprott himself is an especially good person.

Have you read the GLD prospectus? I have read a bunch of it and it scares the daylights out of me. Assuming that they follow its terms to the letter, they could have a vault filled with marshmallows instead of gold and they would not be liable.

[fnord123]

Have you read the GLD prospectus? I have read a bunch of it and it scares the daylights out of me. Assuming that they follow its terms to the letter, they could have a vault filled with marshmallows instead of gold and they would not be liable.

Compare the GLD and PHYS (or SLV and PSLV) prospectus.  The Sprott offerings are no better and are arguably worse in terms of squishiness.

If you don't want to take the time to do it and have been going by what pharmacists like Harvey Organ tell you, at least read this article: http://kiddynamitesworld.com/facts-the- ... s-blogger/

Seriously folks, before commenting about Sprott being particularly good and GLD/SLV/whatever being bad, at least read the above article. It provides links and excerpts from the prospectuses in question.

[Libertarian666]

Have you read the GLD prospectus? I have read a bunch of it and it scares the daylights out of me. Assuming that they follow its terms to the letter, they could have a vault filled with marshmallows instead of gold and they would not be liable.

Compare the GLD and PHYS (or SLV and PSLV) prospectus.  The Sprott offerings are no better and are arguably worse in terms of squishiness.

If you don't want to take the time to do it and have been going by what pharmacists like Harvey Organ tell you, at least read this article: http://kiddynamitesworld.com/facts-the- ... s-blogger/

Seriously folks, before commenting about Sprott being particularly good and GLD/SLV/whatever being bad, at least read the above article. It provides links and excerpts from the prospectuses in question.

I don't see anything about PHYS in that article.

[fnord123]

Here is the direct one for PSLV - the same criticisms apply to PHYS: http://kiddynamitesworld.com/facts-the- ... s-blogger/

Let's start with a some simple items. First, the list of gold bars:

• GLD has a list of their holdings online. The list comes from HSBC (a third party), is dated 11-21-2013 (today). 
• PHYS has a list of their holdings online. The list comes from PHYS (not a third party) and is dated 11-18-2013 (3 days old).

Advantage: GLD (slightly) - it has a more current list and its list comes from a third party.

Now let's look at the audit reports:

• GLD has years worth of audit reports, with scans of the original, signed forms from the auditor. The latest GLD one is from 30-Aug-2013.
• PHYS has a single audit report up, with a scan of the audit form, signature not shown. The only PHYS one is from 19-Jun-2013.

Advantage: GLD (slightly) - it has a more current audit, it has historical audits, and it has the actual signed audit form.

Source for GLD data: http://www.spdrgoldshares.com/usa/gold-bar-list/
Source for PHYS data: http://sprottphysicalbullion.com/sprott ... /bar-list/

Please provide a concrete example of where PHYS is better than GLD in transparency or holdings.  So far PHYS is at best equal, and arguably slightly worse than GLD.

[Reub]

If you don't want to take the time to do it and have been going by what pharmacists like Harvey Organ tell you, at least read this article: http://kiddynamitesworld.com/facts-the- ... s-blogger/

He's a pharmacist? That's a relief. At least he's not a lawyer!

[jason]

I would take that article with a grain of salt.  The author of the article is under the assumption that the ETFs operate exactly as they are supposed to.

The exact same skepticism should be applied to Sprott's funds.  Either you assume that all trusts and ETFs follow the law & their trust documents/prospectuses, or one doesn't.  If you assume that trusts (Sprott) and ETFs (GLD, IAU) follow their trust documents/prospectus, then a strong case is made that Sprott isn't an especially good place to be.

If one doesn't believe ETFs will follow their prospectuses then you should similarly believe trusts won't follow their trust documents. In that case, investing in Sprott's funds is just as bad an idea as investing in GLD or IAU.  Stick with physical in this case.

The only argument I can see for liking Sprott's Trust over an ETF is if one thinks Sprott himself is an especially good person.

Yes, Sprott could easily stray from his prospectus.  Anyone can. The main argument for choosing Sprott over an ETF is that Sprott has a good reputation and has never been convicted of fraud.  The banks that are the custodians for the gold ETFs, on the other hand, have all recently been convicted of fraud.

[fnord123]

Yes, Sprott could easily stray from his prospectus.  Anyone can. The main argument for choosing Sprott over an ETF is that Sprott has a good reputation and has never been convicted of fraud.  The banks that are the custodians for the gold ETFs, on the other hand, have all recently been convicted of fraud.

PHYS uses Price Waterhouse Cooper as its auditor - which has been convicted of fraud.

PHYS uses the Royal Canadian Mint to house its bars.  The RCM has been criticized by people who believe in physical as yet another place that performs "paper bullion" scams via ETFs: http://truthingold.blogspot.com/2012/11 ... -this.html

PHYS = Pot. GLD = Kettle. They are all black.