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Thinking of Investing in Precious Metal ETF's?

InvestorEducation / Exchange Traded Funds Jun 02, 2009 - 04:05 AM GMT

By: Bob_Coleman


Thinking of precious metal ETF's?
Then you better think again... Can't you see the yellow caution light that is flashing...

I would like to explain the difference between investing in the actual metal versus precious metal ETFs. One should completely realize when buying a precious metal ETF, it is simply a representation of the price in gold or silver. Investing in precious metals entails buying the real metal directly or through a program that offers the right to receive physical metal in deliverable form upon liquidation with no conditions.

What is overlooked by most professionals?

One of the items that I read in the prospectus of the gold and silver ETFs that concerns me relates to the reported expenses of the fund. I am a professional expert in the storage and security of gold and silver. I run a fully segregated and insured storage program that is independent of the financial system. I also run a very unique physical gold and silver bullion fund that takes delivery of all physical metal, as well as, stores and insures the metal outside the financial system in fully segregated and armored vaults. I am very knowledgeable with the cost of insuring and securing physical metal.

The expense ratios for many of the ETFs and other funds are very telling.
Many products want to have the lowest fee to attract today's cost conscious investor. However, there is an old saying, "You get what you pay for". I will take the SPDR Gold Shares "GLD" for example. They claim the custodian charges .10 % or 10 basis point to properly safeguard the gold. A qualified custodian must properly store the physical metal through the use of very specific security controls such as cameras, sensors, armed guards, etc. However just as important is the insurance which would protect the facility and owner of the metal in the event of a breakdown in the security controls of the vault.

What is fascinating is the unbelievably low cost the SPDR Gold Shares pays for this security and insurance. Lets forget about the cost of simply providing a secure facility to store the gold.

At these level of assets, there is only one company in the world that insures physical precious metals in armored vaults. I have been told there is no way this insurance company would charge a meager 10 basis points annually for an "all risk" policy. That is equivalent to insuring a car worth $10,000 and its driver for ten dollars a year. No insurance company could ever make enough money to cover the risk of loss on that policy except maybe AIG. Even some of the largest custodians for valuable assets pay a minimum of 15 to 25 basis points just for an "all risk" insurance policy.

Personally, I question any program that stores their metal at a financial institution. In many cases, the financial institution is internally insuring much of the gold it stores. The problem with that is, if the institution runs into financial trouble the owner of the metal has no protection against the loss or damage to the items being stored. And isn't the idea of owning gold and silver a hedge against a failure in the financial system?

That is why our programs store everything outside the financial system in independently insured vaults.

Bob Coleman

© 2009 Copyright Bob Coleman - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

© 2005-2022 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Chuma Mgolodelwa
05 Jul 09, 12:36
Where these fears are coming from

Bob- As much as I hear what you are saying, and not just you alone, many have voiced their concerns and fears around metal etf, but but but I have to say I am not convinced. My problem is most of those who have problems with metal etf are those who have an interest in the metal trade market and stand to and already are on the lossing side. In other words in my mind most of the concern are coming more out of fear of lossing market share due to etf companies growth. Conflict of interest. I doubt if concerns are truely based on flaws on the etf markets, but may actually be a means to preserve their market share.

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