Thursday, March 7, 2013

True and False on Gold ETFs

Sometimes the thing we see written in the press are so stunning that they almost defy comprehension.  In this snippet, The Globe and Mail manages to score a perfect 10 in terms of truth, and second perfect 10 in terms of anti-truth in just two sentences.
"Exchange traded funds have transformed the gold market. Since the first fund was launched nearly a decade ago, the products have become so successful in offering a simple way for investors to buy physical gold that they have acquired the nickname “the people’s central bank.”"
First, the truth.  Gold ETFs have changed the gold market.  There is no denying that at a time when billions are invested in what is considered gold by way of these vehicles.  (I wonder, in fact, if ETFs are responsible for the sometimes lackluster performance of gold stocks.)

I'll admit it.  I own a bit of Sprott's PHYS and PSLV--nervously.

But the anti-truth that follows is astonishing in its audacity.  ". . . the products have become so successful in offering a simple way for investors to buy physical gold."  Really?  Physical gold?  Let me assure you, that while I hold some PHYS, Sprott claims it is 100% backed by gold, that ownership is utterly different than a Maple Leaf, Kruggerand, or Gold Eagle in my control.

Never forget that in the worst case situation, gold is favored because there is no counter-party risk.  Gold ETFs may perform in a similar fashion to gold for a day, a month, or a thousand years.  Still, the counter-party risk will remain.

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