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?
Author Name: Walter Pehowich
Walter Pehowich is the executive vice president of precious metals investment services for Dillon Gage with over 38 years of experience in precious metals investment services. His career began in 1977 at Bache (which evolved to Prudential-Bache Securities and then Jefferies Investment Bank). While at Jefferies, he served as senior vice president with oversight of investment grade precious metal products. Pehowich holds a National Futures Association (NFA) Series 3 license, authorizing him to advise and sell alternative investments in commodities and futures markets.