Gyroscopic Investing

When reading the internet and researching the options for paper gold, GLD is frequently discouraged because the prospectus terminology is vague and implies the gold may be fake. I find it kind of ridiculous that an ETF with so many investors and so much money and momentum could have fake gold in the vault. Wouldn't one of the genius billion dollar hedge funds be shorting it and then figure out a way to require an audit?

Could GLD then be the safest because it's the biggest and any shenanigans would have been apparent by now?

The fact that it has the most daily volume also makes it the most liquid and least suspectible to daily trade spreads.

I forgot to add that people say GLD is bad because it's taxed as a collectible rather than long term capital gains. However, for a PP investor, this shouldn't matter because the only people investing in GLD in the PP are people like me who don't have enough taxable assets to buy gold coins and we're using this paper gold in an IRA. So the fact that it's taxed as a collectible doesn't matter in an IRA.

If we had the money in a taxable account, we'd just buy the coins and be done with it.

coinstar wrote: I forgot to add that people say GLD is bad because it's taxed as a collectible rather than long term capital gains. However, for a PP investor, this shouldn't matter because the only people investing in GLD in the PP are people like me who don't have enough taxable assets to buy gold coins and we're using this paper gold in an IRA. So the fact that it's taxed as a collectible doesn't matter in an IRA.

If we had the money in a taxable account, we'd just buy the coins and be done with it.

Coins are taxed at the collectibles rate; my understanding is that GTU is taxed as normal capital gains if you fill out the 8621 properly each year.
That's a good enough reason for me to have some GTU.
Note: not an accountant or tax lawyer, do your own research, etc.

Libertarian666 wrote: And to answer the original question, of course no giant entity could be fraudulent, because someone would short it and require an audit!
Now where did I put that Enron stock certificate?

Good point.

I would add that even if everything is on the up and up with GLD (which it probably is), during a crash/crisis things get very chaotic.  Paper promises get broken, even if they are legimitate, legal, non-fradulent promises. 

That's exactly what worries me about gold ETFs.  One of the main functions of the gold allocation is that if things REALLY get bad, 1/4 of your wealth will be there no matter what.  Another is to make part of your wealth difficult to grab, as it does not leave the same kind of electronic trail that the other assets do.  ETF gold won't do these things for you.

I'm still planning to keep some ETF gold in retirement accounts for ease of rebalancing when/if the gold price shoots back up, but I'm itching to get a good 75% of my gold allocation in fondle-able form.

I looked into the risks of these some time ago and finally decided to diversify by holding several ETFs instead of just one like GLD.  In fact GLD is one of the funds that made me most nervous after reading the detailed agreement.

As others have pointed out, they are all "paper" gold and can disappear in a puff of smoke if something really bad happens, like the derivatives market collapses or the ETF company goes bust.  However, many of these funds assets are held in different countries (London, Switzerland, US, Canada), and many hold allocated gold, so I'm hoping they don't all go bust at once if things get really bad.

And of course, real physical gold is the best to hold, but you have to factor in storage/security costs for it as well as other considerations like how to easily hold it in an IRA (reliable custodian?) and rebalancing.

My thinking is that if a diverse set of gold ETFs all go bust at once, I'll probably have much larger things to worry about at that point - like imposed capital controls, and where to find enough food, water, and shelter to survive.

sophie wrote: I'm still planning to keep some ETF gold in retirement accounts for ease of rebalancing when/if the gold price shoots back up, but I'm itching to get a good 75% of my gold allocation in fondle-able form.

It keeps you warm at night too once you warm it up!

MachineGhost wrote:

sophie wrote: I'm still planning to keep some ETF gold in retirement accounts for ease of rebalancing when/if the gold price shoots back up, but I'm itching to get a good 75% of my gold allocation in fondle-able form.

It keeps you warm at night too once you warm it up!

That was for barrett's benefit :-)

Nice image though!