Physical vs Paper

Discussion of the Gold portion of the Permanent Portfolio

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WildAboutHarry
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Re: Physical vs Paper

Post by WildAboutHarry » Mon Mar 31, 2014 5:10 am

[quote=bronsuchecki]I think there is a big difference between IRA physical gold option held as allocated gold and an ETF[/quote]

I agree that there are physical gold-IRA options that might be less subject to counterparty risk (or other risks) than ETFs or CEFs.  But physical in your possession has zero counterparty risk, and gold held in a safe-deposit box has very, very low counterparty risk.

[quote=bronsuchecki]Why are you looking for a gold mutual fund, is there a problem rolling over some of the money as WildAboutHarry suggests?[/quote]

Individual 401(k) plans may or may not allow in-service distributions, and those that do may have age or other restrictions for eligibility.  If you are 55 or over, though, I believe you can take a 401(k) distribution without penalty (but with taxes if you do not do a rollover).

[quote=portart]I wonder if there isn't some creative way to play gold in a  retirement account that is more reliable then an etf.  Is there any pure mutual fund that is made up of 100% held gold bullion? It would seem to me that if PRPFX and can it at 25% (20% gold, 5% silver), someone would come up with a fund that is all real held gold.[/quote]

As rickb mentioned, GTU and CEF are pure metal holdings that trade as closed-end funds.  I have used GTU in the past, and for me it was the best way (fewer overall risks in comparison to precious metal ETFs) to hold gold in an IRA.  You do have to come to grips with the premium/discount issue of CEFs, though.
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I Shrugged
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Re: Physical vs Paper

Post by I Shrugged » Thu Apr 03, 2014 8:38 pm

I'm in a similar situation;  I just cannot see taking the tax haircut.  If you look at the tax bill as insurance against problems with the ETF, that insurance premium is way too high, IMO.
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Re: Physical vs Paper

Post by stuper1 » Fri Apr 04, 2014 7:29 am

I Shrugged wrote: I'm in a similar situation;  I just cannot see taking the tax haircut.  If you look at the tax bill as insurance against problems with the ETF, that insurance premium is way too high, IMO.
I wouldn't call the taxes a "haircut".  The taxes are inevitable.  You either pay them now or pay them later.  If you foresee yourself being in a lower tax bracket later, then sure, it's advantageous to defer them.  Or if you foresee that a large portion of your 401k will pass to an heir who will be in a lower tax bracket, then again, yes, by all means defer the taxes.  But if neither of those things apply, then I would still fear the potential gold-run haircut more than the inevitable taxes.  Maybe a good strategy would be to take out as much paper gold per year as you can without moving into the next higher tax bracket, and convert that amount to physical gold.
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Re: Physical vs Paper

Post by Tyler » Mon Apr 07, 2014 12:00 am

portart wrote: Most of the time I don't worry about but whenever I read about it, I get nervous. Any ideas?
IMHO, the gold ETF counter-party risk is real but it is small enough that one should not lose sleep nor make any rash financial decisions to run from them.  It sounds like your reading list may be the bigger risk to your financial and mental health. 

I do like having some hard cash laying around for an emergency, and I'd similarly like to buy a bit of physical gold to stash away (although I'm worried gold and boats do not mix well).  But I'm personally in no real hurry to convert all of my IAU.
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sophie
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Re: Physical vs Paper

Post by sophie » Mon Apr 07, 2014 7:39 am

This is an excellent question since it's one we are all dealing with.  I too would be very uncomfortable holding that much money in gold funds, and I am definitely concerned that some of them won't survive if gold continues to remain out of favor (i.e. if the stock boom continues).

Although physical gold held in an IRA does put a layer between you and your money, it's an option that Harry Browne recommended in his book, in the discussion about holding gold at Swiss banks.  Given the amount of money you are dealing with I think you should at least look into this option for part of your gold allocation if you can do an in-service rollover.  The fees are typically > 2-3x what the ETFs or closed end funds charge, with non-allocated storage being on the cheaper end.  For starters, take a look at Fidelity's gold purchase option - they will sell you coins and hold it for you in an IRA account, at a Nova Scotia bank - plus the options Bronsuchecki mentioned, if they are available to US residents.

I also agree that it makes no sense to withdraw IRA money now, while your tax rate is high - 40% is a mind-blowingly high bracket that will certainly drop once you retire.  In the meantime, you could consider buying gold instead of prepaying debt now.  The tax benefit of the mortgage is working in your favor, and you can pay it off with your IRA withdrawals once you retire.
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