Gyroscopic Investing

What is the best way to hold gold in an IRA?

I use IAU.

Xan wrote: I use IAU.

Second that. IAU has the lowest expense ratio. However it is strongly recommended to pair IRA gold holdings with some physical bullion.

What exactly do you mean, "pair IRA gold holdings with some physical bullion"?  Say I have 10,000 in IAU? What are you suggesting?

Do a search on this site for GTU, a Canadian closed-end fund that holds gold.  Better fundamentals/structure than IAU/GLD, but you have to deal with the premium/discount of a closed-end fund.  It is worth a look.

I think what foglifter is getting at is that Harry Browne preferred holding physical gold first, with the "paper" types of gold a distant second.

There are IRA trustees that will hold physical gold (U.S. Gold Eagles), but they tend to be somewhat costly and have counterparty risk, etc.

WildAboutHarry wrote: Do a search on this site for GTU, a Canadian closed-end fund that holds gold.  Better fundamentals/structure than IAU/GLD, but you have to deal with the premium/discount of a closed-end fund.  It is worth a look.

I think what foglifter is getting at is that Harry Browne preferred holding physical gold first, with the "paper" types of gold a distant second.

There are IRA trustees that will hold physical gold (U.S. Gold Eagles), but they tend to be somewhat costly and have counterparty risk, etc.

Wouldn't I have to be concerned about the exchange rate between Canada and US as well?

Gebo wrote: What exactly do you mean, "pair IRA gold holdings with some physical bullion"?  Say I have 10,000 in IAU? What are you suggesting?

Thanks, WildAboutHarry! I should've picked better words.

Usually when we mention physical gold on the forum we always talk about coins or bars in your possession. I just meant the gold allocation should include physical gold (outside IRA) along with some paper gold for easier rebalancing. Physical gold in IRA is doable, but it's pretty much defies the purpose of having it in physical form - in case of SHTF event IRA gold may not be easily and quickly available.

foglifter wrote: Thanks, WildAboutHarry! I should've picked better words.

Usually when we mention physical gold on the forum we always talk about coins or bars in your possession. I just meant the gold allocation should include physical gold (outside IRA) along with some paper gold for easier rebalancing. Physical gold in IRA is doable, but it's pretty much defies the purpose of having it in physical form - in case of SHTF event IRA gold may not be easily and quickly available.

it is also expensive and inconvenient to hold physical in an IRA, it took me one to two months to sell and transfer the funds when i switched to the etf and real physical allocation i hold now... 

Gebo wrote:Wouldn't I have to be concerned about the exchange rate between Canada and US as well?

No, the shares trade on the NYSE (it also trades on the Toronto exchange).  Remember, you are buying shares that represent physical gold.  What matters is the price you pay for those ounces.

If you look at the GTU net asset value page here you can find the net asset value in both US and Canadian dollars.

Buying GTU is a bit tricky.  Since it is a closed-end fund it can trade at a premium or discount to its net-asset value.  You need to know the NAV based on the current price of gold and the current share price to really know what the premium/discount is.

So GLD or IAU are easier to buy and understand, but I think the governance of GTU is superior.

WildAboutHarry wrote: So GLD or IAU are easier to buy and understand, but I think the governance of GTU is superior.

GLD and IAU are easier to buy?  They and GTU trade just like stocks.  I don't see any difference whatsoever.

GLD and IAU are easier to understand?  Really?  GTU has X oz of gold it owns in vaults in Canada and Y outstanding shares.  Its net value per share (NAV) at any given time is clearly (spot gold price)*X/Y.  Its market price may be higher or lower than this, but its NAV is dead obvious.  GLD and IAU hold some amount of gold and have some number of outstanding shares which are both subject to change at any time (and are reported perhaps once a day).  A share of GTU is an ownership interest in a specific amount of gold.  A share of GLD or IAU is an ownership interest in a piece of paper whose value is related to an authorized participant's ability to trade shares at their current price for gold (increasing or decreasing the number of outstanding shares).  Can you confidently say what the NAV of GLD or IAU is throughout the day?  What's the impact of shorted shares or authorized participant activity in each case?  If the price of gold spikes upward during a day, what happens to the market value of GLD vs. GTU?  Is it simply a coincidence that HSBC (the custodian of GLD) and JP Morgan (the custodian of both IAU and SGOL) are widely rumored to hold sufficient short positions in gold to enable them to manipulate the spot price?

There's quite a lot I simply don't understand about GLD and IAU.  GTU seems incredibly simple to me.

Wild Harry and Rick,

I understand both of your points.  My problem as a newbie looking to put at least 100K (up to 200K) of Retirement 401K into a PP, it gets confusing.  It's like listening to the opening statements of the Prosecuting Atty and Defense Atty.  Right after each finishes, I believe them both. Then it takes a little time with each side giving more info until we get to the point we can make a decision.

I'm not a monetarily "rich" man but a Pastor trying to get the "best" return for the next 15 years on his entire savings.  If I don't get this right, it might hurt a little.
Of course my Father owns the cattle on a thousand hills...

What do you think of the company "hard assets alliance"?

rickb wrote:GTU seems incredibly simple to me.

Quick, tell me what the GTU premium/discount is right now!  It makes a difference to me whether the premium is 0% or 5%.  I can buy GLD/IAU anytime without worrying about the premium/discount.  To buy GTU I have to determine what the GTU premium is, and will make a purchase only if it is below my "comfort" level (less than 2%, if you want to know).

GTU also holds some cash and gold certificates, in addition to physical gold, so it is a bit more complex than just gold in a vault.  They can also create new shares out of thin air.  I understand how they do that, but it might be a bit unnerving to someone investigating GTU for the first time.  I fundamentally agree with your description of what GTU is and your concerns about GLD/IAU:

WildAboutHarry wrote:[GTU has] Better fundamentals/structure than IAU/GLD, but you have to deal with the premium/discount of a closed-end fund.

But apparently the market thinks differently about which one to own.  GTU has a market cap of a bit over a billion, IAU over 9 billion, GLD about 65 billion.

It would not surprise me that the folks here who implement the PP hold paper gold in the proportions 1:9:65 for GTU:IAU:GLD.

Fyi, if you want allocated physical, James Turk's company, goldmoney.com works with an IRA administrator to provide access.  I haven't used their services because my holdings are almost entirely taxable, but if I was going to buy and hold in an IRA & outside of the US, I'd give them a strong look.

WildAboutHarry wrote:

rickb wrote:GTU seems incredibly simple to me.

Quick, tell me what the GTU premium/discount is right now!  It makes a difference to me whether the premium is 0% or 5%.  I can buy GLD/IAU anytime without worrying about the premium/discount.  To buy GTU I have to determine what the GTU premium is, and will make a purchase only if it is below my "comfort" level (less than 2%, if you want to know).

GTU also holds some cash and gold certificates, in addition to physical gold, so it is a bit more complex than just gold in a vault.  They can also create new shares out of thin air.  I understand how they do that, but it might be a bit unnerving to someone investigating GTU for the first time.  I fundamentally agree with your description of what GTU is and your concerns about GLD/IAU:

WildAboutHarry wrote:[GTU has] Better fundamentals/structure than IAU/GLD, but you have to deal with the premium/discount of a closed-end fund.

But apparently the market thinks differently about which one to own.  GTU has a market cap of a bit over a billion, IAU over 9 billion, GLD about 65 billion.

It would not surprise me that the folks here who implement the PP hold paper gold in the proportions 1:9:65 for GTU:IAU:GLD.

GTU also has lower volume than IAU and GLD, which means that you have a to be a little more careful about market orders and getting your orders filled can be a little bit harder.

WildAboutHarry wrote:

rickb wrote:GTU seems incredibly simple to me.

Quick, tell me what the GTU premium/discount is right now!  It makes a difference to me whether the premium is 0% or 5%.  I can buy GLD/IAU anytime without worrying about the premium/discount.  To buy GTU I have to determine what the GTU premium is, and will make a purchase only if it is below my "comfort" level (less than 2%, if you want to know).

GTU also holds some cash and gold certificates, in addition to physical gold, so it is a bit more complex than just gold in a vault.  They can also create new shares out of thin air.  I understand how they do that, but it might be a bit unnerving to someone investigating GTU for the first time.  I fundamentally agree with your description of what GTU is and your concerns about GLD/IAU:

WildAboutHarry wrote:[GTU has] Better fundamentals/structure than IAU/GLD, but you have to deal with the premium/discount of a closed-end fund.

But apparently the market thinks differently about which one to own.  GTU has a market cap of a bit over a billion, IAU over 9 billion, GLD about 65 billion.

It would not surprise me that the folks here who implement the PP hold paper gold in the proportions 1:9:65 for GTU:IAU:GLD.

Wild - I wasn't disputing any of your points (which I entirely agree with), just your summary.  Dealing with GTU (as opposed to understanding it) is indeed a little tricky because you do have to pay attention to the premium (or rarely discount), and the relatively infrequent share creation events can be disconcerting (I think you know this, but for others benefit these events typically cause the premium to suddenly shrink by 3-4%, causing the market price to drop by this much).  Dealing with IAU/GLD is easier, but understanding exactly what is going on is (I think) much harder.  See my slightly tongue in cheek write up from a while ago -  http://gyroscopicinvesting.com/forum/ht ... ic.php?t=2 .  I'd say GTU,IAU, and GLD are all about as easy to buy (MT's point about volume is a good one as well), GTU has a much simpler structure (easier to understand, but it is a closed end fund which is a little harder to understand than an open end fund but not nearly as hard to understand as an ETF), and (in normal circumstances) IAU/GLD are more convenient to deal with (market price tends to track NAV very closely).

In addition to differences already mentioned, GTU has a 40+ hear history (GLD is the oldest gold ETF at slightly less than 8 years old), and GTU typically pays its expenses from profit generated when new shares are created (as opposed to the ETFs which allow their authorized participants to benefit from creating/destroying shares and pay their expenses as fees charged to the shareholders).  I suspect most people think of GLD/IAU as being the same as an open ended mutual fund (you buy shares and they then buy gold, or you sell shares and they sell gold to give you your money back), but they're completely different animals.

WildAboutHarry wrote:
Quick, tell me what the GTU premium/discount is right now!  

http://lmgtfy.com/?q=gtu+premium&l=1

dragoncar wrote:

WildAboutHarry wrote:
Quick, tell me what the GTU premium/discount is right now!  

http://lmgtfy.com/?q=gtu+premium&l=1

That is so cool! Thanks, dragoncar. 

foglifter wrote:

dragoncar wrote:

WildAboutHarry wrote:
Quick, tell me what the GTU premium/discount is right now!  

http://lmgtfy.com/?q=gtu+premium&l=1

That is so cool! Thanks, dragoncar. 

I hadn't noticed the premium expansion lately.

It might be time to move back into IAU.

I've always thought that a relatively easy "intra-asset" PP tweak would be to split the gold allocation 50/50 between GTU and IAU and "rebalance" the gold allocation once that 50/50 reached +/- 3% from the original allocation.  In other words, when the GTU premium expands you would sell GTU and buy IAU, and when the GTU premium contracts you would sell IAU and buy GTU.  The overall volatility of gold as an asset is irrelevant because you have already neutralized that risk through the overall design of the PP.

MediumTex wrote: I hadn't noticed the premium expansion lately.

It might be time to move back into IAU.

I've always thought that a relatively easy "intra-asset" PP tweak would be to split the gold allocation 50/50 between GTU and IAU and "rebalance" the gold allocation once that 50/50 reached +/- 3% from the original allocation.  In other words, when the GTU premium expands you would sell GTU and buy IAU, and when the GTU premium contracts you would sell IAU and buy GTU.  The overall volatility of gold as an asset is irrelevant because you have already neutralized that risk through the overall design of the PP.

Wouldn't that trigger the wash sale rules?

Pointedstick wrote:

MediumTex wrote: I hadn't noticed the premium expansion lately.

It might be time to move back into IAU.

I've always thought that a relatively easy "intra-asset" PP tweak would be to split the gold allocation 50/50 between GTU and IAU and "rebalance" the gold allocation once that 50/50 reached +/- 3% from the original allocation.  In other words, when the GTU premium expands you would sell GTU and buy IAU, and when the GTU premium contracts you would sell IAU and buy GTU.  The overall volatility of gold as an asset is irrelevant because you have already neutralized that risk through the overall design of the PP.

Wouldn't that trigger the wash sale rules?

I'm assuming we are working with a tax deferred account.

dragoncar wrote:

WildAboutHarry wrote:
Quick, tell me what the GTU premium/discount is right now!  

http://lmgtfy.com/?q=gtu+premium&l=1

Nice try, but that was the premium/discount at 4:48pm on August 16th, 2012, in whatever time zone GTU lives, using the London Second Closing price for gold.  During the day and until that time the site posts the previous day's closing information. 

The gold price and share price of GTU continue to move during the day and after that closing, and if it is a particularly volatile trading day the premium/discount can have pretty wide swings.

Pretty cool tool, though.

rickb wrote:Wild - I wasn't disputing any of your points (which I entirely agree with), just your summary.

No problem.  I do not own IAU or GLD mainly for the reasons you mention.  I do own some GTU.

The 40-year history is comforting, and I think GTU's sibling - the Gold/Silver Central Fund of Canada (CEF) - has an even longer history.

Continuing our examination of GTU, it may be worth noting that it holds about $1 per share in cash.  Not a huge deal, but it is there.

We do a lot of Perth Mint Certificates in IRAs. No NAVs to worry about, just direct 100% gold in whatever coin/bar size you want.

I'm not a big fan of closed end funds which trade at premium/discounts, when the price spikes/bubbles and everyone is selling you run the risk of a big discount forming. GLD and IAU don't have that problem. However the closed end funds like CEF are a lot more rock solid from a risk point of view. I mean, consider this from the GLD prospectus:

"The Trust does not insure its gold. The Custodian maintains insurance with regard to its business on such terms and conditions as it considers appropriate which does not cover the full amount of gold held in custody. The Trust is not a beneficiary of any such insurance and does not have the ability to dictate the existence, nature or amount of coverage. Therefore, Shareholders cannot be assured that the Custodian will maintain adequate insurance or any insurance with respect to the gold held by the Custodian on behalf of the Trust."

WildAboutHarry wrote:

rickb wrote:Wild - I wasn't disputing any of your points (which I entirely agree with), just your summary.

No problem.  I do not own IAU or GLD mainly for the reasons you mention.  I do own some GTU.

The 40-year history is comforting, and I think GTU's sibling - the Gold/Silver Central Fund of Canada (CEF) - has an even longer history.

Continuing our examination of GTU, it may be worth noting that it holds about $1 per share in cash.  Not a huge deal, but it is there.

Probably worth clarifying the 40+ year history is actually CEF's, not GTU's (although they're both run by the same folks with CEF being a gold/silver blend and GTU being its gold-only twin - there's a silver only version as well, SBT.UN, or SVRZF).  GTU was started in 2003, only slightly more than a year before GLD.

I haven't looked at this in detail, but I suspect the cash GTU holds is profit from the last time they issued new shares, which they use to pay the trust's expenses rather than selling any of the gold they've bought. 

Regarding NAV - the amount of gold they own and the number of shares don't change except when they issue new shares.  So take the total ounces from yesterday, multiply by the current spot price of gold, add the cash, and divide by the outstanding shares.  You can do this at any time during the day and compare to the current market price.  With GLD/IAU the total ounces and the outstanding shares can change due to authorized participant activity at any time, so there's really no way to know what the true NAV is at any point in time - unless you're the custodian - and I'd bet an arbitrarily large amount of money that if there's a significant premium or discount the custodian wouldn't tell anyone but the most favored authorized participants.  Note also the custodian of GLD (HSBC) is almost certainly an authorized participant of IAU and vice versa (IAU's custodian is JP Morgan).  I've actually spent some time looking to see exactly who the authorized participants are and the best I've found is a statement in a 10K filing saying "list is available from the sponsor or trustee".  If anyone can find a list of GLD's (or IAU's) APs, please post it.  With GTU, the premium/discount is always available for anyone to compute, completely in the open, completely transparent.

There is no problem calculating the NAV of IAU or GLD as the gold ounces backing each share is disclosed on their websites and just multiply this by the spot price (and no need to add cash as they are just 100% gold).

Yes APs deliver gold and get shares (and vice versa) for IAU and GLD but that is done at the oz/share backing so it does not complicate the NAV calculation. The oz/share only changes once a month when they use ounces to pay the management fee, but the revised oz/share is available on the website.

"significant premium or discount the custodian wouldn't tell anyone but the most favored authorized participants" - this doesn't happen as everyone knows what the oz/share backing is, it is completely transparent.

It is highly likely that HSBC and JPM are APs for both IAU and GLD as well as most of the major bullion banks. With that depth of market making and the ability to create/redeem shares there is no way any significant premium or discount can arise as it leaves the door open to the others to scalp the profits.

The market making create/redeem process is not a reason to not invest in IAU or GLD.