ETFs
gecko109
Posts: 8,231 ✭
With PM prices surging, I can only wonder if a much higher % of "new metal owners" are really just ETF owners.
This is a very interesting concept for me, as it seems like this may just be a huge game of musical chairs. As more people jump onto the bandwagon, do you think they are buying more physical or electronic metal? If its the latter, then we might see a giant bubble forming....but not the type of bubble we are used to seeing. Its hard for me to imagine any of the ETFs turning away new customers simply because they dont hold enough actual metal in reserve to sell new shares. There has to be a certain amount of "fractional banking" going on with ETFs so that they can make higher profits. What percentage they are allowed to oversell would be interesting to know. If its anything like the banking system, they could be selling as much as 10 oz for every 1oz physical on hand. This could eventually create a huge burp if metals run up high enough and people clamor to cash out. How would an ETF that holds just 10% of actual metal on hand cash out 25-35% of their customers all at once if the demand to cash out was there? By selling new shares of more PMs that they dont actually own? Can you say Ponzi?
This may eventually result in the largest price increase of precious metals the world has ever known. Physical will one day become the ONLY accepted method to owning metals. Afterall, how can you truly "own" something that doesnt even exist???
This is a very interesting concept for me, as it seems like this may just be a huge game of musical chairs. As more people jump onto the bandwagon, do you think they are buying more physical or electronic metal? If its the latter, then we might see a giant bubble forming....but not the type of bubble we are used to seeing. Its hard for me to imagine any of the ETFs turning away new customers simply because they dont hold enough actual metal in reserve to sell new shares. There has to be a certain amount of "fractional banking" going on with ETFs so that they can make higher profits. What percentage they are allowed to oversell would be interesting to know. If its anything like the banking system, they could be selling as much as 10 oz for every 1oz physical on hand. This could eventually create a huge burp if metals run up high enough and people clamor to cash out. How would an ETF that holds just 10% of actual metal on hand cash out 25-35% of their customers all at once if the demand to cash out was there? By selling new shares of more PMs that they dont actually own? Can you say Ponzi?
This may eventually result in the largest price increase of precious metals the world has ever known. Physical will one day become the ONLY accepted method to owning metals. Afterall, how can you truly "own" something that doesnt even exist???
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Comments
<< <i>I was thinking this the other day gecko, and I think it is right on. I think most of the new people getting in at this point are electronic metals. My opinion is that metals are going to sky rocket in the coming years. >>
Perhaps ... but as the saying goes "what goes up must come down."
<< <i>
<< <i>I was thinking this the other day gecko, and I think it is right on. I think most of the new people getting in at this point are electronic metals. My opinion is that metals are going to sky rocket in the coming years. >>
Perhaps ... but as the saying goes "what goes up must come down." >>
Of course it will, that goes without saying.
But I was referring to gecko's thoughts on how ETFs will play out in the future with paper vs physical, and how much of it is electronic.
The idea of actually holding hard metal must be difficult for people to get their head around much less actually get up offa their butts long enough to go look at some and plunk down some real FRNs to get the metal in their pocket...then what to do? They are likely confused about what to do with it other than put it in the sdb tomb. Of course, they forgo the research into real metal, never bother to visit a B&M or coin show and read all the goobers pumping paper and all the fear and loathing from all the anti-hard metal gurus on TV and netmedia and what can they do but punch the etf button on their computer. It's just so much easier and you can go tell the spouse that you bought gold today. Hopefully, the spouse won't ask to see it so you don't have to wimp out and only have a paper receipt to show for some paper gold. Imagine the difference if you were to flip a wrapped 5 oz Engelhard down on the breakfast table and the response would likely be "Yeah, baby" and then there's always the domestic goodness that is sure to follow. As with all things, you get out of them what you put into them.
To paraphrase a quip from a board member...In times of a flood, would you rather have a certificate for a boat or a real boat?
LOVE IT!!!
With PM ETFs being taxed at "collectible" rates and not capital gains rates, they aren't that appealing to me.
New collectors, please educate yourself before spending money on coins; there are people who believe that using numismatic knowledge to rip the naïve is what this hobby is all about.
<< <i>"...In times of a flood, would you rather have a certificate for a boat or a real boat? "
LOVE IT!!! >>
Or a lb of $100 bills or a 5 lbs of Silver?
GLD and SLV are the GREATEST/EASIEST trading vehicles for
small/medium investors/gamblers.
Obviously, neither are DESIGNED to "replace" physical holdings.
<< <i>GLD and SLV are the GREATEST/EASIEST trading vehicles for
small/medium investors/gamblers.
Obviously, neither are DESIGNED to "replace" physical holdings. >>
This is a given...my question is, at what point will this system become a problem as the masses start to buy into ETFs with greater velocity. And what impact will it have on physical metal if/when this system eventually implodes?
Imagine the difference if you were to flip a wrapped 5 oz Engelhard down on the breakfast table and the response would likely be "Yeah, baby" and then there's always the domestic goodness that is sure to follow.
I dunno why, but I thought it was a great quote!
I knew it would happen.
<< <i>GLD and SLV are the GREATEST/EASIEST trading vehicles for
small/medium investors/gamblers. >>
Are these audited by an independent authority to verify that they have the gold and silver to back their paper?
Worry is the interest you pay on a debt you may not owe.
"Paper money eventually returns to its intrinsic value---zero."----Voltaire
"Everything you say should be true, but not everything true should be said."----Voltaire
Mining ETFs such as GDX, GDXJ and SIL are plays I like much better. At some point takeover rumors will flood the mining industry. Looks like mining stocks hav finally decoupled from the movement of the Dow.
Kitco pool accounts are also a good "paper" play for the same reason and probably have the same risk.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
<< <i>I don't play with ETFs but I always assumed that the PM ETFs held a 100% reserve of actual metal. Now I see with a little googling that it's not always that way.
With PM ETFs being taxed at "collectible" rates and not capital gains rates, they aren't that appealing to me. >>
The various ETFs may be different in the percentage of actual metal they hold.
Because of the tax situation, probably the best place to hold ETFs is in an IRA.
My Adolph A. Weinman signature
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey