Options
You might not want to be in an ETF backed by physical metal . . .
derryb
Posts: 36,214 ✭✭✭✭✭
What Happens If Everyone Wants Delivery?
"The real irony is the price of gold could be skyrocketing and the ETFs could be going bankrupt at the same time."
I'll stick with the non-backed PM ETFs, there's plenty of them that are either strictly derivatives are based on miner performance.
Note the definition of counterparty risk: "Unlike physical gold bullion - which is a tangible asset - ETFs are a financial product that have counterparty risk. Counterparty risk is present when there’s a possibility the other party in an agreement will default or fail to live up to their obligations.
Give Me Liberty or Give Me Debt
0
Comments
What ifs? What if ( insert your description ) happens. We'd all bend over and kiss our arses goodbye. No counterparty risk involved.
Counterparty risk is present when there’s a possibility the other party in an agreement will default or fail to live up to their obligations._
No one is disputing that.
Knowledge is the enemy of fear
At least not since they got spanked.
Give Me Liberty or Give Me Debt
the cancer has spread
I suspect counterparty risk is going to move from discussion to center stage. Especially where unregulated, bank-to-bank OTC derivatives are concerned. Gonna be quite a few naked emperors exposed as the FED scrambles to quickly clothe them. I don't believe the FED has enough tailors. As we learned in '08-09, promises were good as long as the gains were good.
Give Me Liberty or Give Me Debt
Do you want to see the prospectus for GLD?
Yes? Okay then.....
here:
*The Trust may not have adequate sources of recovery if its gold is lost, damaged,
stolen or destroyed and recovery may be limited, even in the event of fraud, to the market value of the
gold at the time the fraud is discovered.
and
Because neither the Trustee nor the Custodian oversees or monitors the activities of
subcustodians who may temporarily hold the Trust's gold until transported to the Custodian's London
vault, failure by the subcustodians to exercise due care in the safekeeping of the Trust's gold could
result in a loss to the Trust.
and
Gold held in the Trust's unallocated gold account and any Authorized Participant's
unallocated gold account will not be segregated from the Custodian's assets.
If the Custodian becomes insolvent, its assets may not be adequate to satisfy a claim by the Trust or any Authorized Participant. In addition, in the event of the Custodian's insolvency, there may be a delay and costs incurred in identifying the bullion held in the Trust's allocated gold account.
and.... BEST OF ALL:
The sale of gold by the Trust to pay expenses will reduce the amount of gold
represented by each Share on an ongoing basis irrespective of whether the trading price of the Shares
rises or falls in response to changes in the price of gold.
unless this is better:
When the seven year fee reduction period terminates or expires, the estimated ordinary
expenses payable by the Trust may increase, thus reducing the NAV of the Trust more rapidly and
adversely affecting an investment in the Shares.*
Not me, pay for gold in cash, take the items straight into the SDB !!!
So how you getting your gold from the SDB when the lobby is closed? Send your keys to the teller at the drive-thru?
Las Vegas has nothing on the PM markets.... Always a gamble... True, there are winners...in both venues...Unlike Vegas though, as @topstuf has pointed out, there are legal escape hatches for 'the house' in bad times. Of course, Vegas has so many 'gamblers', the 'house' always wins....
Cheers, RickO
Most banks will allow you to make an appointment to come in to gain access to your SDB.
Worry is the interest you pay on a debt you may not owe.
used my appointment to empty the box. not taking any chances.
Give Me Liberty or Give Me Debt
???
Knowledge is the enemy of fear
Better watch out out for those counterpartys among you.
Knowledge is the enemy of fear
Yep THE OTHER PARTY with the key to my SDB is a counterparty
Give Me Liberty or Give Me Debt
Or the men wearing masks who walk up to your front door.
Knowledge is the enemy of fear
These guys?
Give Me Liberty or Give Me Debt
This guy.
https://www.fox5atlanta.com/news/police-elderly-man-killed-in-dekalb-county-home-invasion
Knowledge is the enemy of fear
All paper money eventually returns to it's true value - zero. Voltaire. Physical possession is golden, all the rest is chit.
I believe in having physical metal, of course. That’s the core.
But an ETF for gold or silver is hard to beat for trading or short-term holds.
These days with zero commissions, easy and well know bid/ask spreads, price transparency, and the ability to trade tax free in a Roth IRA...I am in favor of using an ETF.
The alternative is navigating the buy (either driving around town, or searching the internet), paying a heavy markup, paying for shipping and handling, potentially sales tax...then when the market spikes you have to head out looking for a seller, negotiate, potentially pay shipping, insurance, etc. Who wants to haggle with a guy who may be lowballing you from across the counter? (He has to to make his spread, pay the rent, have some well-earned profit.)
ETFs are wonderful. Sure there is some risk...but it’s not a risk I’m worried about.
He who knows he has enough is rich.
Or you can work with a top quality PNG gold dealer (of 35+ yrs) who handles 6-7 figures in gold bullion/slabbed US gold every week. Mine has worked on 2-3% for the past 12 years. And since he carries his own FedEx account with separate insurance, it doesn't cost much to ship him a package of gold coins. You always have the choice of working with your local shops at premiums of 6-20%. I have another regional dealer who works on 4-5%. And he's happy to sell gold to customers at the same price the smelter pays him.....sames him having to ship, assaying and waiting for payment.
No one can "low ball" you from across the counter when you can pick up the phone during business hours and get competitive quotes from Heritage, Rarcoa and other leading bullions/gold coin buyers/sellers. You should already know the price range you can get (+ shipping) before venturing out to your "across the counter" guy. Historically, I've seen Heritage work on 3-7% spreads....depending on the gold coin in question and the state of the market. I've seen buy/sell spreads as low as 2.5% to 3.5% when the market is strong and gold is in strong demand. Even one of my local coin shops will work on 1-2% if you bring them a large enough deal.
I've known about the "limitations" of GLD and SLV since they first came out. And I wouldn't touch them. Never have...never will. Wouldn't recommend them to anyone. At least the Canadian gold/silver ETFs make an effort to put real metal in their funds....and actually do rigorous routine inventories and audits of the physical metal. The so-called "audits" on GLD and SLV are paper only, based on the word/paperwork of other parties who said they had it. The actual person signings for the completed audit are several parties removed from the metal. All those "layers" ultimately means "no one is responsible."
For those with 3-5 yrs with gold bullion, gold coins, and slabs, it's that hard to find deals out in the market place where you can get in at 0-1% of wholesale. In fact, there are some collectors in the BST who have been doing that for over 10 yrs. Poke around. You'll be surprised at what pops up from time to time.
I was unaware there were ETFS backed by physical metal. Can anyone share a list of these etfs or any that they know of??
Very few claim they are backed by the metal. Most are derivatives that are tied to some other underlying price. For example, GDX is a gold miner index.
ETF database, precious metals, pages of them
Give Me Liberty or Give Me Debt
Just remember you can no longer keep gold bullion in a SDB. It has to be "collector coins"
says who?
Give Me Liberty or Give Me Debt
The problem is you may be holding the ETF when the music stops and the price drops dramatically irrespective of the gold price
Don't buy and hold most ETFs. Monitor them daily.
Give Me Liberty or Give Me Debt