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  • The Gold IRAs 101 Team

Gold Stock and ETF's vs. Physical Gold

Updated: Dec 5, 2019

Gold ownership in Stock, ETF's or the physical Gold, which one is better? The drawback to physical Gold ownership is the possibility of theft. Physical ownership of Gold requires a secure storage area to prevent a person from coming in to steal it. This could be why Gold ETFs are becoming popular.

The physical risk of holding Gold could be driving gold stocks and ETF purchases to new highs. However, the physical risk is not as harmful as other inherent dangers that are inside the overall structure and the operation of Gold Stocks and ETFs. Investors are not aware of the dangers of owning Gold stocks or ETFs. If a financial crisis breaks out that requires investors to sell Gold in mass quantities, these same investors could find out that their gold has been stolen.

In recent decades, the public's trust in the overall banking system has declined considerably. Trusting investment banks to hold Gold for investors is not an idea that 100% of investors believe in. When analyzing both gold stocks, ETF’s and gold bullion, the investor may find out that both investments are susceptible to theft.

Remember, Gold Stocks and ETFs are NOT Physical Gold Ownership

An inexpensive, quick way to invest in Gold is the capital SPDR Gold Trust or GLD. Investing in GLD comes with the ability to invest in options, which is something that you cannot do with bullion.

The investment GLD is a fund that holds physical Gold to back its shares. The overall price is in line with the price of Gold and trades like a stock. However, a large majority of investors in this ETF do not have a claim on the Gold that backs the shares to this ETF. This ETF allows you to request physical delivery of Gold if you own a minimum of 100,000 shares. A vast majority of the investors in this ETF do not have over $1 million invested in calling for the physical delivery of the Gold. Even if they did have more than 100,000 shares, the ETF can settle the request in cash and not in Gold. In sum, your purchase of the gold ETF is not physical Gold. Investment banks that offer Gold ETFs do not hold Gold

Gold stocks and ETFs do not physically hold the Gold to back up the price of Gold on the exchanges. Instead, what they do is they take your money, and they request a third-party to purchase the Gold for them. The third party then finds the source of Gold, buys the Gold, and holds the Gold in a custodian like relationship.

This is a problem because the risk of holding the investment of Gold is already risky enough. The fact that investment banks are holding physical Gold with third parties to back up a gold ETF makes the gold investment more dangerous than holding gold bullion. Future economic trouble could force the investment banks to sell Gold that they may not have. When the investment banks don't have the Gold they will go out of business and force you to collect their money from them.

Some may believe that this risk does not exist because the investment banks can be trusted with having complex relationships with their custodians that hold Gold for them. However, many educated investors of stocks and ETFs understand that the investment banks do not have written contracts with custodians of Gold. To put it short, the investment banks that run the ETFs are trustees that do not have enforceable written contractual agreements with their complex custodian relationships. This means that the trustee of the ETF cannot take effective legal action against companies or persons that hold Gold for them. This, in itself, increases the risk of investing in a gold ETF over bullion.

Would you trust your money and Gold ownership with an investment bank? Most investors are not educated as to the unethical behavior of investment banks. They automatically trust investment banks with their money. This automatic trust could be why there has been unethical behavior in the recent past. Take HSBC for an example. In recent decades, HSBC has been fined for illegal financial activity, domestic money laundering, international money laundering, illegal financing activity, abusive mortgage practices that led to the 2008 crisis, and violations of the Bank Secrecy Act. On top of this, HSBC has open criminal investigations internationally. HSBC has paid over $2 billion in penalties and fines in recent decades. Would you trust them?

The benefits of owning physical Gold

Savvy investors know that Gold is expected to rise in times of economic downturn. These investors want to hedge against risk, but they do not want the added chance that owning GLD ETF has. Owning physical gold bullion gives an investor a peace of mind knowing that untrustworthy investment banks cannot run away with their Gold when financial turmoil hits.

Gold bullion is the physical metal that can be held in your name and on your property for the price listed on the gold exchanges. Investing in physical Gold is better than having paper assets because it reduces the risk of Gold ownership. As mentioned above, most investors in Gold ETFs cannot request the physical Gold even if they own above a certain amount of shares. This leaves the investor with the possibility that they will only get cash to redeem the ETF. With physical Gold, you can be assured that there are plenty of buyers to purchase or gold if you need to raise some money. There are local gold dealers that will buy your Gold.

When you buy gold bullion, the asset is yours. When you buy a gold ETF, the Gold is stored with third parties that do not have a contractual obligation to provide the investment bank or you with the Gold. In essence, when you buy a gold ETF, you do not own the Gold, you only own shares that are tied to the price of Gold. When financial turmoil hits, you can lose all of your money in the ETF.

There are many benefits to Gold ownership as an investment. Gold is very portable, and you can own a significant amount in dollars of the Gold and keep it in a tiny container. Gold is very convenient to have because it can be held in small quantities but be worth a lot of money. Gold bullion will last multiple lifetimes and can be easily converted into cash.

Summary : Gold bullion ownership is best

Even better, physical gold ownership in a 401k or IRA makes the most sense for a lot of people. No matter how bad the economy gets, Gold will still retain its value. For thousands of years, Gold has been instrumental in conducting business regardless of what social, political, or financial climate the world is going through. Physical gold ownership is a better investment than trusting investment banks because the physical Gold has never defrauded an investor.

If you are interested in purchasing physical gold and owning it in a gold IRA or 401K, we highly recommend Regal Assets for your your gold investment needs. They can manage every aspect of your Gold IRA transfer or rollover. Contact them by clicking on the link below today for your free, no hassle investment kit:

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Best Regards,

The Team