Physical Gold vs. ETFs

Today I wanted to talk about ETFs, exchange traded funds. Gold exchange traded products are exchange traded funds that track the price of gold. I expect there is a lot of confusion between owning paper gold and owning the physical product. The reason I decided to talk about this topic today is I noticed an increased participation in these funds in the last couple of days.

Some see it as a buying opportunity I guess, with the price of gold consolidating at these current levels.

The thought process in purchasing the ETF (paper gold) is to gain exposure to the spot price of gold without owning the physical metal. This a totally different mindset from the investor who buys the physical product. I believe that the holders of ETFs feel that they have more freedom with owning shares of gold. But if my intention is to own gold, why would I want it in paper form instead of owning the physical product? Physical gold is accepted all over the world and is extremely liquid.

An ETF is a credible alternative if a person wanted to trade gold in the short term. If however the investor’s desire to own gold is to diversify their portfolio, hedge against inflation, provide an alternative currency, remove counter-party risk, or own an asset that is not encumbered by Wall Street, the physical asset is clearly the better way to go as we have seen paper gold promises go up in flames for centuries, while the physical has an unbroken track record of wealth preservation.

On another note: I guess I have some company in believing that the FED will have no credible data to raise rates anytime soon. With the recent news out of China and uncertainties in our equity markets regarding future corporate earnings, some financial advisors have seen an increase in gold and silver demand. Some Wall Street traders indicate they have no intention of adding to, or changing their short bias at this time. This creates an interesting a tug of war between the retail investor and the Wall Street Trader. Only time will tell. What side of the ledger are you on?

Have a wonderful weekend.

Disclaimer: This editorial has been prepared by Walter Pehowich of Dillon Gage Metals. This document is for information and thought-provoking purposes only and does not purport to predict or forecast actual results. It is not, and should not be regarded as investment advice or as a recommendation regarding any particular security, commodity or course of action. Opinions expressed herein are current opinions as of the date appearing in this editorial only and are subject to change without notice and cannot be attributable to Dillon Gage. Reasonable people may disagree about the opinions expressed herein. In the event any of the assumptions used herein do not come to fruition, results are likely to vary substantially. All investments entail risks. There is no guarantee that investment strategies will achieve the desired results under all market conditions and each investor should evaluate its ability to invest for a long term especially during periods of a market downturn. No part of this editorial may be reproduced in any manner, in whole or in part, without the prior written permission of Dillon Gage Metals. This information is provided with the understanding that with respect to the opinions provided herein, that you will make your own independent decision with respect to any course of action in connection herewith and as to whether such course of action is appropriate or proper based on your own judgment, and that you are capable of understanding and assessing the merits of a course of action. You may not rely on the statements contained herein. Dillon Gage Metals shall not have any liability for any damages of any kind whatsoever relating to this editorial. You should consult your advisors with respect to these areas. By posting this editorial, you acknowledge, understand and accept this disclaimer.