Gold: how to hold it (ETF vs account vs physical)

[zocab]

(No need to discuss whether or not Gold is worth it or stupid, or whether it's going to go up, down, or disappear - there are enough threads for that . Let's stick to the question of how to store Gold)

Those of you who hold Gold: how do you hold it?
- ETF/Fund (physical or virtual)?
- Accounts or services physical Gold (such as bullionvault, or a gold account at your local bank)?
- Bars, in a bank vault/safe?
- Bars at home/other location?
(Have I missed anything)

I've started by trying to compare costs:
- For ETF's and funds: something like SGOL (has physical gold): 0.17% yearly, can be traded and stored for effectively free except spread. No physical delivery for most of them I believe.
- Bullionvault has 0.5% trading fee (lower for large trades above 75k), 0.12% expense ratio once you reach 40k holdings (fixed 4 USD/mth below that). Physical withdrawal possible, but expensive (multiple percent including delivery if I'm reading their docs right)
- Metal account at a random local bank (delivery of physical gold possible, costs unclear): 0.3% trading fee, .19% expense.
- Physical bars: spread is apparently 1% for the more common bars (bigger), higher for smaller bars. Plus you'll need storage.
- Bank vault: available from CHF 70/yr here, but you'd probably want insurance too.It's pretty clear that costs are lowest with ETF's,
- Home vault: ...... no idea.

For short term holdings, it's pretty clear that costs are lowest with ETF's. However, for large amounts and long term holdings, bars in a vault might be cheaper (depending on insurance costs, no idea what they are). However physical gold is also a hassle. Curious what people who hold gold do?

[unemployable]

PHYS lets you exchange for the physical, although with a minimum of around a million.

[classical_Liberal]

Why are you holding the gold? What purpose does it serve in your portfolio?

I ask because that is really the key in deciding how to hold it. ETF's do no good if you're worried about a sudden SHTF circumstance. Physical does very little good if you're simply trying a noncorrelation strategy, or dabbling in gold due to its momentum. Physical is expensive to hold and transact with. If you want it for both, I'd say hold appropriate amounts in each fashion (this is what I do).

[JollyScot]

For the shit hits the fan amounts I have a few gold coins that I keep stored. It's a small proportion of my net worth and the intention is not to sell them unless a disaster hits.

For any amount I buy because I think there is a trading opportunity then I use bullionvault. I've found them to be good in the years I've dealt with them.

I had considered a stack of silver coins, however in the UK taking delivery of silver attracts VAT (20%). Whereas if it sits in a vault it does not. However in the vault it attracts capital gains. Maybe storing silver coins in a vault would avoid both, but that is too much faff to deal with, which is probably the point.

[Alphaville]

real question, because in a SHTF scenario i see a breakdown of law and order and bullets as the single valid currency.

but assuming there’s still trade: how would you use your gold coins? 1/10th oz coince seems more useful to me (roughly $200 at today’s price). 1oz coins maybe if you want a motorcycle.

what would you buy in a SHTF scenario? groceries? medical supplies? gasoline? and who would want to accept gold, and for what?

my worry with gold coins is i’d lose them quickly in a bad transaction.

9mm luger or .223 remington otoh always a market for and handy in a tight spot. even the measly .22lr is super useful and would make for great small change.

—

if keeping metals for trade, wouldn’t silver be better?

[classical_Liberal]

real question, because in a SHTF scenario i see a breakdown of law and order and bullets as the single valid currency.

I think it may have use for greasing the wheels of a breaking down bureaucracy during chaotic times. Or as a store of value that's easily transportable (ie 10k is a few coins in your pocket) to an area(s) where s**t hasn't quite hit the fan as badly. Not for bread and milk, that's a different solution space.

[Alphaville]

I think it may have use for greasing the wheels of a breaking down bureaucracy during chaotic times.

ah! yeah...

or get on the last boat/airplane/chopper/etc

i see...

[JollyScot]

Yeah in your scenario with needing guns and bullets the gold would be trying to wait out the mess.

Over here we can't be trusted with guns, unless you know you are nice and rich and need them for "hunting". Or a bad person, illegal guns still easy enough to get.

[zocab]

That kind of SHTF scenario seems rather unlikely where I live, given that most men are either actively in the army, or have served, and therefore it's fairly easy to maintain order (plus or minus some smaller amounts of unpleasantness) - unless everyone decides to rebel at once, which is not all that likely. Anyhow, that's not something I'm actively planning for - and money would be the least of your worries.

More likely scenarios: software problems leading to loss of records, the US government deciding to confiscate "alien" property or otherwise abandoning rule of law* (I happen to use US brokers/the US market for cost reasons, but that's also a risk), hyperinflation in multiple currencies, other odd issues like that. Unlikely, yes. Worth protecting against? Also not sure - but if the costs don't increase much, why not?

classic_Liberal's mix seems like the way to go: physical for the part that is held long term (trading costs might be higher, but if you hold enough Gold for long enough then the lack of TER compensates for the costs - and physical is worth a premium for the digital money falling apart scenario), and ETF for short-term adjustments.

* Given how asset forfeiture works, this might not be such a crazy possibility after all. Not likely for the average non-US investor, but certainly not impossible.

[JollyScot]

Yeah that is my worry that the just decide that amounts held in accounts needs to be handed over at some defined low rate.

US already did this in the past. So I see it as a non zero chance if they do find themselves in a proper set of problems currency wise. Hence I would like a small stack that is outside the overall "system".

Then again they could just make me a criminal for holding it. Also been done in the past.

I am not expecting shit to hit the fan to the extent of arming yourself. However I do see the possibility that the central powers would quite like to take a large portion of wealth to help save themselves. If you need to devalue a currency then letting normals benefit is not the preferred option.

It may be that they decide to whack on a large tax to any increase meaning they get it all anyway. Still some semblance of a back-up is preferred to none. I worry about it a bit more in UK as the key backers offshore a lot of their money. So policies that impact general people they circumvent very well.

I wonder sometimes why I moved back at all.

[Alphaville]

in an age of fiat currency do we really expect that "wealth" in the form of precious metals would be seized by government for any kind of useful purpose? it's the faith and credit of a government that backs a currency. if it's there, your money is worth something. if it's not there, no number of melted wedding bands can make up for it, can it?

[RealPerson]

Full disclosure: I own a small quantity of billion gold in a bank vault. Not recommending that, just stating a fact.

I have a question about holding gold in any form other than physically having it in your possession. I heard that a paper certificate of gold ownership, or actually a number of 0s and 1s in a computer somewhere, is not necessarily covered by the actual gold. I.e. if every owner of a certificate asked to take possession of the physical gold, there would not be enough gold to send it to everyone. Is this just another conspiracy theory or is this a valid concern?

[classical_Liberal]

if it's there, your money is worth something. if it's not there, no number of melted wedding bands can make up for it, can it?

Maybe. Monetary policy is so complex it goes beyond my scope. I'll try to explain as I understand it.

The reason we had constant deflationary cycles in the 19th and early 20th centuries is because money supply was fixed to something, gold or silver. The industrial revolution created so much economic activity, so quickly, that the monetary supply could not keep up with the activities. Hence the phased unwinding into fiat currency. Many gold bugs may argue this is bad, but it was actually good IMO, because we needed to somehow increase the monetary supply to match economic activity.

Now-a-days, if the monetary supply remains relatively fixed to total economic activity, we'd probably be OK. The problem is that it isn't anymore. We've seen massive increases in monetary supply, without the corresponding economic activity. It was used as a liquidity bandaid for underlying problems that were "to big to fail", so to speak. This is very easy evidenced by the lack of monetary velocity since the beginnings of all this new money supply. This lack of velocity and low rates is why the fed can't influence inflation very effectively anymore, see liquidity trap. All this new money supply just wasn't needed for the underlying economic activity. Mostly, it just got stuffed into existing economic assets, lowering yield of all capital instead of stimulating more economic activity that would correspond to the increased supply. This is why, when the Fed tried to unwind back in 2018, the capital markets freaked out.

So the "faith" in the credit and stability of the government, really means faith in the underlying economic activities that derive the need for increased debt/money. That's what the monetary supply is ultimately backed by. Now, if people lose faith in those economic activities, but a government were to say, go back to a gold reserve standard where each dollar is backed by 10 cents of gold (purely fictional amount, no idea what percentage would be feasible), then you'd have a secondary backing of the currency. Which could stop a tailspin of a particular currency when most of the world is debt based fiat only. Eventually, if economic activity continued to grow, you'd run into hard limits again though, and need more money.

[JollyScot]

@RealPerson I am not sure whether or not it really is covered, they put out their "audit" of the holding. There is nothing to say it is legitimate. Unless it is in your hands then technically you can't trust anyone. You would hope the vaults have it with it being their key selling point but you never know, Even if they do have it, if a government went and said, give me that, they would hand it over.

@Alphaville If they decide that faith is gone and they need to reset their reserves to be back buy something, then no reason they wouldn't just take it. All in the public good after all.

In terms of the money supply not being linked to gold there has been a 50 year decline in the interest rates, So a cycle of boom, crash, cut interest rates, boom, crash, cut interest rate...and so on. Then each crash cycle the interest level is a little bit lower to support the system underlying. We have now reach the point were there isn't another cut in interest rates on the cards. Maybe all the house investment baby boomers will pull some other rabbit out the hat.

It now means the level of interest rates to support the system is such that people are paying governments to take their money on real terms. So what is the outcome, it looks like at the moment the whole world is printing enormous amounts of money. Most of which seems to be flowing into assets just now. It come down to whether you think the invented money you have will become worth less as a result or not.

I think the £ is going to be in for a prolonged period of pain so I hold non £ assets. In addition I don't trust my government so I want an amount in my hands to go along with that. It means I am looking at real assets and eventually a mixture of dividend paying stocks but I'm less keen to jump into those just now.

Dollars is a harder one as it is the reserve currency. So you have the advantage of managing to force people to need the currency for a lot of transactions. More than just your citizens needing it to pay the ever increasing tax bills. Now if that was to ever not be the case, US would have a bit of a shock to realign, it would probably bring some jobs back though as the cheque book being used would be less useful in buying other peoples stuff.

I think another dose of reality will come along when the next round elections finish and people can stop promising stuff the same. UK will have its shock when Brexit finally happens after 4 years of talking about it happening. If you don't have an unafforable debt load then just ride it out as best as you can. ERE makes it less bad that it is for a normal person.

[Alphaville]

i think we’ll sooner see currency backed by oil or rare earths or some other strategic commodity than by gold. but with the rise of digital currencies, all manner of private or crypto currencies can be issued. also other reserve currencies may rise—yuan, euro, singapore dollar, something else.

also, a liquidity trap and a lost of faith in the currency are mutually exclusive—you don’t hang on to what’s worthless. devaluation actually drives people to spend rather than save.

in any case there is the potential for straight up plunder by either government or private agent when it comes to valuables, of course. but for the express rational purpose of backing a new currency... i find that highly doubtful.

[classical_Liberal]

i think we’ll sooner see currency backed by oil or rare earths or some other strategic commodity than by gold.

If you wanna get real snazzy, and hope that humans will someday think long term and ignore our genetic predispositions... You could base a world reserve currency around how much renewable energy each country can contribute. Then, instead of wasting resources mining for gold or bitcoins, we could increase the currency base by "mining" renewable energy. The more sustainable energy you produce, the more money a political entity gets to stimulate economic growth. Each unit of energy produced sustainably means more economic activity can continue sustainably, so the money supply should keep up with sustainable economic output. If we overgrow the currency supply (ie energy supply by default), we get hit with nasty deflationary spirals to appropriately reduce the economic activity based on available energy.

I call it the c_L coin. Sounds like the basis for a good scifi novel, if only I could write.

[Alphaville]

renewable energy
[...]
I call it the c_L coin. Sounds like the basis for a good scifi novel, if only I could write.

it’s a great idea, and eventually it will be done that way (i mean we already have energy markets, such credits/debits could be currency in itself)

and you can call your novel “enron two”

[Alphaville]

i will gladly pay you tuesday for 2 megajoules* today

* actually it takes a lot more energy to create the ~500kcal of a hamburger, but just for lols

[fiby41]

In plain sight.

[Jean]

I once realised that my whole networth could fit in my rectum if converted to gold, but i don't know if it would be confortable or safe to carry it that way and i don't wan't to try.