Re the previous post: "The ETF approach keeps getting pigeon holed by those promoting Perth Mint certs as for short term speculators but this is also highly questionable.. It is true that like all ETF's there is an AMC in this case 0.4% pa but what is failed consistently to be stated is the entry cost of 3% for the certs. That is very steep. In a flat market the ETF is cheaper than the certs for 7.5 years!!!. That's a big difference.
The ETF approach also allows I believe for more rapid processing of orders ie is less cumbersome. So lets have some balance please."
I am all for balance.
Let us get the facts straight though.
The ETF costs are not solely the 0.4% per annum compounded.
There are also stamp duty charges and broker fees.
And the ETF has the bid/offer spread which is generally some 0.20%.
With regard to counter party risk with regard to auditors and custodians - it is not as simple as the ETF having "its gold in physical form held in HSBC bank in London."
If you read the ETF's own prospectus there is a string of counter parties who are indemnified.
The prospectus states:
"Some of the risk factors listed in the prospectus are
· the loss, damage, theft or restrictions on access to the Trust’s gold
· the lack of adequate sources of recovery if the Trust’s gold is lost, damaged, stolen or destroyed, including a lack of insurance
· the failure of gold bullion allocated to the Trust to meet the London Good Delivery Standards
· the failure of sub-custodians to exercise due care in the safekeeping of the Trust’s gold
· the limited ability of the Trustee and the Custodian to take legal action against sub-custodians;
· the insolvency of the Custodian
· the Trust’s obligation to reimburse the Purchaser and the Market Agent for certain liabilities in the event the Sponsor fails to indemnify them
· the lack of experience of the Sponsor and its management in operating an investment vehicle such as the Trust
· competing claims over ownership of intellectual property rights related to the Trust "
These are not hypothetical risks.
This is evident from the fact that the World Gold Council, the sponsor of the StreetTRACKS ETF is being sued by Gemini Diversified Holdings. They accuse the World Gold Council of betrayal and stealing their idea. The lawsuit alleges that the WGC took the idea for an ETF and then developed a "suspiciously similar product."
Recently we have seen the world's largest energy trader, Enron, and the world's largest commodity brokerage, Refco, go bankrupt. Large respected institutions can and do go bankrupt with devastating consequences for undiversified 'investors'.
The Perth Mint has an AAA rating, the highest rating from Standard and Poor's (higher than any Irish bank) and has been operating as a mint since 1899. As it is government owned it means that the investors are indemnified by the citizens of Western Australian -the WA taxpayers. Whereas the private institutions involved in the ETF are indemnified from the ETF investors.
Slightly important distinction that.
With regards liquidity. Perth Mint Certificates (PMCs) are highly liquid and can be sold by simply signing a PM certificate and faxing it or electronically scanning it and emailing it to an Approved Dealer.
Let me be clear. If you are taking a short term punt on gold then the ETF, futures or spread betting is the way to go. However if you are diversifying your portfolio and hedging against geopolitical, macroeconomic or systemic risk then physical bullion in your own safe, physical bullion in a safety deposit box in a secure bank or depository or government gold certificates are a better way to go.
As a stated previously it need not be an "either or" proposition and ETFs for speculation and physical bullion and government certificates can both be in a properly diversified portfoilo.
We can all get along and peacefully coexist.
;-)