Before buying a gold ETF, ask yourself whether you are a trader or buying gold to preserve your purchasing power.
If you are a trader, then ETFs serve a purpose, much like futures, options, and other ways to bet/speculate on whether the currency you use to measure your wealth is rising or falling compared to the value of gold. Gold ETFs are like these trading vehicles. You do not own gold; you only own exposure to gold's 'price', i.e., its rate of exchange to the currency. All these vehicles have counterparty risk, namely, the risk that the counterparty will not honour its promise and make good on your bet when your want to realise your gain.
If you want to preserve your purchasing power and avoid counterparty risk, own physical bullion.
Gold ETFs are a potential honeytrap. Given that governments have confiscated gold in the past, assume it could happen again. In a currency and/or banking crisis and gold is in demand, the government needs purchasing power to spend its way out of the crisis (bailing out banks, re-establishing its own credit, etc).
In 1933 the US government took all the gold in banks and gave the gold owners $20.67 per ounce, and then benefitted from the gain in purchasing power by devaluing the dollar to $35 per ounce. Why couldn't it do it again? On a weekend a dictate is issued confiscating your ETF shares, for which you only receive the original purchase price and the government then takes whatever gold is in the ETF (which is always less than the stated amount because of short selling the ETF shares).
So if you want the safety and security that gold offers - and silver too - then avoid the ETFs and buy physical metal.
The bitcoin ETF is also a honeytrap because the same logic applies.
Thank you for your full reply. As you say the Us government could well confiscate gold again from all depositories of gold, including banks and ETF trustees, and persuade all western governments and their central banks, reliant upon the US Dollar, to do the same paying only the current value then subsequently devalue the US Dollar against gold. To counter this risk individual investors need to be in physical bullion but they will not be able to sell it to realise the gain whilst gold is banned, which could be years. What does one do other than bury it in the back garden. Surely Goldmoney's gold deposits would be similarly affect? Graham Barnes
Gold deposits held in custody by Goldmoney would be far harder for the US Government to access. Imagine having your gold held in Singapore. It is almost certain that the Authorities there will not obey an instruction from the US Government to yield anyone's gold without that individual's permission. This is fundamentally different from ETFs to which you may have an entitlement in a central register. That is not the same as having the property in it, let alone no more than a claim on the underlying assets.
Thank you for your reply Alistair. I accept your point but not guaranteed that the US Government cannot persuade, or pressurise the Canadian Government, to confiscate privately held gold to maintain the US Dollar. We live in very dangerous times.
In a real crisis I'd not rule anything out. Today I posted Greg Hunter's interview of David Rogers Webb who explains how all the stock and bonds in the DTC will be used without underlying beneficiaries' consent as collateral.
Thank you for your reply but it the event of a financial crisis in the democratic world, which is is certainly a possibility if not a probability, won't Canada along with other western jurisdictions comply with America's demands for the sake of supporting the US Dollar?
Before buying a gold ETF, ask yourself whether you are a trader or buying gold to preserve your purchasing power.
If you are a trader, then ETFs serve a purpose, much like futures, options, and other ways to bet/speculate on whether the currency you use to measure your wealth is rising or falling compared to the value of gold. Gold ETFs are like these trading vehicles. You do not own gold; you only own exposure to gold's 'price', i.e., its rate of exchange to the currency. All these vehicles have counterparty risk, namely, the risk that the counterparty will not honour its promise and make good on your bet when your want to realise your gain.
If you want to preserve your purchasing power and avoid counterparty risk, own physical bullion.
Gold ETFs are a potential honeytrap. Given that governments have confiscated gold in the past, assume it could happen again. In a currency and/or banking crisis and gold is in demand, the government needs purchasing power to spend its way out of the crisis (bailing out banks, re-establishing its own credit, etc).
In 1933 the US government took all the gold in banks and gave the gold owners $20.67 per ounce, and then benefitted from the gain in purchasing power by devaluing the dollar to $35 per ounce. Why couldn't it do it again? On a weekend a dictate is issued confiscating your ETF shares, for which you only receive the original purchase price and the government then takes whatever gold is in the ETF (which is always less than the stated amount because of short selling the ETF shares).
So if you want the safety and security that gold offers - and silver too - then avoid the ETFs and buy physical metal.
The bitcoin ETF is also a honeytrap because the same logic applies.
Dear James Turk,
Thank you for your full reply. As you say the Us government could well confiscate gold again from all depositories of gold, including banks and ETF trustees, and persuade all western governments and their central banks, reliant upon the US Dollar, to do the same paying only the current value then subsequently devalue the US Dollar against gold. To counter this risk individual investors need to be in physical bullion but they will not be able to sell it to realise the gain whilst gold is banned, which could be years. What does one do other than bury it in the back garden. Surely Goldmoney's gold deposits would be similarly affect? Graham Barnes
Gold deposits held in custody by Goldmoney would be far harder for the US Government to access. Imagine having your gold held in Singapore. It is almost certain that the Authorities there will not obey an instruction from the US Government to yield anyone's gold without that individual's permission. This is fundamentally different from ETFs to which you may have an entitlement in a central register. That is not the same as having the property in it, let alone no more than a claim on the underlying assets.
Thank you for your reply Alistair. I accept your point but not guaranteed that the US Government cannot persuade, or pressurise the Canadian Government, to confiscate privately held gold to maintain the US Dollar. We live in very dangerous times.
In a real crisis I'd not rule anything out. Today I posted Greg Hunter's interview of David Rogers Webb who explains how all the stock and bonds in the DTC will be used without underlying beneficiaries' consent as collateral.
All good points James. Securitisation is credit, not money!
Since governments confiscate gold bullion held by ETFs why can they not confiscate gold bullion held in trust for investors from Goldmoney, Inc?
By storing it in a vault out of your jurisdiction, it will make confiscation extremely difficult, if not impossible.
Thank you for your reply but it the event of a financial crisis in the democratic world, which is is certainly a possibility if not a probability, won't Canada along with other western jurisdictions comply with America's demands for the sake of supporting the US Dollar?