Sunday, November 6, 2011

Porter Stansberry: Bullion over ETF's

The following quote is by Porter Stansberry from Stansberry's Investment Advisory.   It's a paid subscription, so please don't expect to see the full text via that link unless you're willing to subscribe.
"I believe it is critical to hold physical bullion, not an exchange-traded fund (ETF) that invests in gold. The volume of contracts that trade on the futures markets (where ETFs control a lot of metal) dwarfs the amount of actual physical gold in the entire world. This indicates two things to me... 
First, the price of gold is likely depressed by selling in the futures markets. Whether that's a conspiracy or simply good trading, I can't say. .  .   But whether the price of gold and silver is manipulated doesn't really matter to me because, like it or not, the price is eventually going higher.
The second thing the volume of futures trading relative to the supply of gold tells me is... sooner or later... there will be a run into physical gold. When that happens, the futures markets will collapse because there won't be enough metal to meet demands for physical delivery."
I don't often use a quote unless I can link to the original material. I made an exception here for a couple of reasons. First, I think Stansberry has a lot on the ball. You might even want to subscribe.

The reason I couldn't resist this quote though, is that it makes two really vital points. The first is that investing in precious metals ETF's is very different from investing in precious metals bullion. The results may be similar--last year, this year, next year, and beyond. But someday, they made the diverge dramatically, and perhaps even catastrophically, for those who have relied on ETF's.

The other key point, which is implied if not stated, is that we may not recognize the difference between ETF and bullion until a run on bullion (and crashing ETF prices) occurs. At that point, of course, it will be too late to adjust your holdings without suffering significant financial loss.



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