Gld..how it works

Discussion of the Gold portion of the Permanent Portfolio

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mathjak107
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Gld..how it works

Post by mathjak107 » Wed Jan 22, 2020 6:52 pm

Interesting article on how Gld works

https://www.voimagold.com/insight/gld-a-crash-course
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europeanwizard
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Re: Gld..how it works

Post by europeanwizard » Wed Jan 22, 2020 11:41 pm

Good one, especially how it points to counterparty risk.
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sophie
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Re: Gld..how it works

Post by sophie » Thu Jan 23, 2020 7:55 am

Thank you to the authors of that article!

I didn't know the exact mechanics, but I did have some idea that this is likely true:
The problem with all the counterparties involved with GLD is that they don’t primarily deal with gold. These are the biggest banks in the world, and if any branch of these banks fails, it can have consequences for the entire entity, and GLD will potentially suffer too. In my view, it’s best to store gold outside of the financial system.
Also interesting that GLD is described as a "derivative".

Likely all the ETFs work the same way, except maybe for closed end funds. It looks to me like AAAU is the major exception. It's simply a way to hold unallocated gold at the Perth Mint via an ETF instead of having to open an account with them - except that instead of paying buy/sell commissions and enjoying zero storage fees, you pay no commissions and have to pay storage fees in the form of an expense ratio.
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Re: Gld..how it works

Post by modeljc » Thu Jan 23, 2020 5:28 pm

sophie wrote:
Thu Jan 23, 2020 7:55 am
Thank you to the authors of that article!

I didn't know the exact mechanics, but I did have some idea that this is likely true:
The problem with all the counterparties involved with GLD is that they don’t primarily deal with gold. These are the biggest banks in the world, and if any branch of these banks fails, it can have consequences for the entire entity, and GLD will potentially suffer too. In my view, it’s best to store gold outside of the financial system.
Also interesting that GLD is described as a "derivative".

Likely all the ETFs work the same way, except maybe for closed end funds. It looks to me like AAAU is the major exception. It's simply a way to hold unallocated gold at the Perth Mint via an ETF instead of having to open an account with them - except that instead of paying buy/sell commissions and enjoying zero storage fees, you pay no commissions and have to pay storage fees in the form of an expense ratio.
Alway love your posts. I got PHYS in a taxable account. Some in non-taxable. Could you sleep OK with the higher expense ratio and not having AAAU if your are 82 years old?
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sophie
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Re: Gld..how it works

Post by sophie » Fri Jan 24, 2020 7:25 am

Dunno about the sleeping OK part, but ETFs are banned from my taxable holdings and I just recently finished moving all my tax-advantaged gold to AAAU. I like that much better.

Of course, I now get to hope that nothing bad happens at the Perth Mint. I would guess that it's probably not too different from hoping nothing bad happens to my physical gold coins. No plans to take them on a boat though!
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Re: Gld..how it works

Post by Kbg » Fri Jan 24, 2020 11:39 am

sophie wrote:
Fri Jan 24, 2020 7:25 am
ETFs are banned from my taxable holdings
All or just gold ones? If the former, why?

On gold (I've resisted wading in on this but lost my discipline)...having read some of the prospectuses, their structures look very similar. AAAU has actually outsourced the running of the the trust to a commercial company but says the Western Government of AUS (whatever that is) backs it fully. If safety is a concern, I think a better move is to simply allocate across several (cheap) gold trust etfs.

On the quoted article...that's pretty much how all ETFs work. I had to laugh over the derivatives comment. Given the article's use of the term derivative every ETF and mutual fund in existence is a derivative (and technically this is true). In the literal definition of a derivative anything not the "thing" is a derivative. So, to be very concrete about this. You can either own a "derivative" of the S&P 500 index in the form of a mutual fund or ETF or you can have the fun of trying to own 500 stocks, track the S&P 500 changes and re-weight stocks periodically. The issue isn't "derivative" per se. It is the nature and level of removal of the derivative from the "thing" itself.

And to be super blunt about counterparty risk, unless you physically have possession of the "thing" there is counterparty risk in pretty much any financial asset these days as pretty much everything is accounted for digitally.
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Re: Gld..how it works

Post by technovelist » Sun Jan 26, 2020 2:03 pm

sophie wrote:
Fri Jan 24, 2020 7:25 am
Dunno about the sleeping OK part, but ETFs are banned from my taxable holdings and I just recently finished moving all my tax-advantaged gold to AAAU. I like that much better.

Of course, I now get to hope that nothing bad happens at the Perth Mint. I would guess that it's probably not too different from hoping nothing bad happens to my physical gold coins. No plans to take them on a boat though!
Yes, that is probably the greatest danger!

Personally I'm happy with the Texas Bullion Depository. I like getting pictures of the actual physical metal in storage and in the transaction records when it is sold, and I can go visit it if I want to.
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Re: Gld..how it works

Post by mathjak107 » Sun Jan 26, 2020 3:07 pm

technovelist wrote:
Sun Jan 26, 2020 2:03 pm
sophie wrote:
Fri Jan 24, 2020 7:25 am
Dunno about the sleeping OK part, but ETFs are banned from my taxable holdings and I just recently finished moving all my tax-advantaged gold to AAAU. I like that much better.

Of course, I now get to hope that nothing bad happens at the Perth Mint. I would guess that it's probably not too different from hoping nothing bad happens to my physical gold coins. No plans to take them on a boat though!
Yes, that is probably the greatest danger!

Personally I'm happy with the Texas Bullion Depository. I like getting pictures of the actual physical metal in storage and in the transaction records when it is sold, and I can go visit it if I want to.
Sounds like an episode of American greed
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