Gold Bullion vs. Gold ETF Stocks & Mutual Funds

There are a few distinct variables that may make one person feel more comfortable with investing in physical gold bullion, while another feels more comfortable in owning the ETF’s, otherwise known as exchange traded funds.

ETF’s are essentially a basket of securities, so rather than owning one gold stock you own a basket of stocks that are backed by physical gold or silver, examples being GLD and SLV. In other words, you do not literally own the gold yourself. In reality, you own a certificate that is telling you that you have “X” amount of gold through whichever ETF you hold shares in. 

ETF’s have increased in popularity due to their liquidity, transparency and low management fees. ETF’s are a type of mutual fund that is traded on a stock exchange, and can be bought and sold, long and short. Unlike traditional stocks, ETFs typically offer investors exposure to a basket of securities, currencies, and of course, gold, silver, and copper. 

Should I Invest In Physical Gold Bullion or Gold ETF Stocks?

The biggest gold and silver ETF’s are GLD and SLV. These ETF’s allow you to invest in gold without having to actually handle or store the physical gold. In the event that gold trends up, they are in a low cost vehicle that could be bought or sold just like a stock. The biggest ETF’s, in regard to commodities, are sponsored by the World Gold Council. The WGC genuinely seeks to reflect the price performance of gold by holding gold bars at a vault in London but then in turn, issuing shares backed by their holdings of the physical metal.

Although considered the safest most secure way of owning gold, silver or copper on Wall Street, ETF’s do have certain inherent risks and liabilities that owning physical gold do not. To put it simply, an ETF shareholder has no rights of redemption, which means that the investor doesn’t actually own gold. They own an asset that is backed by gold. The gold bullion bars do exist, however an investor cannot touch it or see it. Participants on behalf of the given ETF are allowed to. 

Furthermore, ETF valuations are often not accurately correlated with the real price of gold, silver or copper. My implication is that Wall Street is notoriously psychologically driven. So, if one person is buying a certain stock and all of a sudden, millions of people are buying that stock, which is part of an ETF, and the value of the stock goes way up as does the value of the ETF, it can be monetarily rewarding. By the same token, it is also artificial and subject to a correction or reality check. Anything bought and sold on paper through Wall Street is open to being manipulated or “adjusted” if the powers that be see it as being to their advantage.

Direct Physical Gold Bullion Investing

Physical gold bullion, along with silver, platinum, palladium, and copper could all be bought in different ways. The most common ways are by purchasing various coins. There are a few select coins that have numismatic value but most, quite frankly, do not. Bullion coins are the most easily traded and universally recognized form of physical gold. Direct gold ownership offers the best investment hedge against potential inflation/ deflation, a spike in rates, something we are witnessing now.

Should I Invest In Physical Gold Bullion or Gold ETF Stocks?

A Real and True Liquidity Crisis 

Owning physical gold or silver bullion enables the investor to be in complete control of where their metals are stored. Precious metals can be held in a depository, whether that be Delaware or Brinks in Utah. In regard to gold backed IRA or self directed rollover accounts, metals must be held in depositories. However, if you purchase gold or silver with cash (otherwise known as fiat currency) you could store it at your house, in a safe, in a ditch, or wherever you feel the most comfortable. Your metal’s are also insured and have intrinsic, unhinged value. By investing in physical gold bullion, you limit all risk due to the fact that you now own a finite commodity and gold, a currency. It’s value cannot be manipulated.

What Does It Boil Down To?

Although both ETF’s and physical bullion are safe, well respected investments in a sector that has potentially unlimited and unprecedented upside, the physical gold offers you much more protection and guaranteed value. ETF’s by design, are set up to be the safest way to buy gold, silver or copper if investing on Wall Street. One thing to take strongly into consideration is that Wall Street’s both greed and fear are driven and always rising and falling due to the perception of supply and demand. It will forever be cyclical and highly leveraged.

On Wall Street, fear is the number one motivating factor driving any harsh crash. That’s why people lose their nest egg overnight. The interesting observation I made during many seasoned years working on Wall Street, was that in the bad markets, the big brokers made the most money. Think about that for a moment. It offered them the biggest opportunity to capitalize on the downside leverage. They anticipated a massive crash and had put positions ready to go. The less “connected” brokers job is to never, ever let you out of your account or out of the market. Therefore, if the market is down 800 points in one day, maybe it was just a “bad day”. Your broker will tell you, “prices are now cheaper, my advice is to buy more”.

Should I Invest In Physical Gold Bullion or Gold ETF Stocks?

”Looking at the bigger picture, maybe it’s indicative of a much more sophisticated, systemic, polarizing issue that transcends anything your broker has any clue about. At the end of the day, your broker makes money by making trades and keeping you in the market. If brokers make money in both good and bad markets, the question remains whether or not they are working in your best interest”.

What it boils down to, is that although I do see advantages in owning certain positions on Wall Street and certainly in being diversified, our economic climate is horrifying. The traditional approach to investing is antiquated. The safest investment is the physical gold. Gold has been used as a currency since kings and queens. The dollar bill has been around for 200 years and the Federal Reserve, 100 years.

Regardless of your monetary goals and objectives, level of risk aversion or political persuasions, I’d bet on a biblical currency over a printed piece of paper. Remember, the Federal Reserve is an institution that answers to no one. We witnessed it in 2008, but today’s debt and lack of liquidity are far scarier. Physical gold and silver is the ultimate safe haven and responsible things to do for yourself and your children. Come a day when you want to sell the gold or silver, assuming you are working with an honest metals broker, you can do so more swiftly and easily than you could sell a stock or an ETF. Physical metals will not only protect your wealth but as prices continue to surge, and the very nature of money evolves, so will your net worth.


China’s Rise and the New Age of Gold

How Investors Can Profit from a Changing World Kindle Edition

The radical change coming to the global economy and the investments you need to make sure you stay ahead of the curve.

China’s growing role in the global economy is showing no sign of retreat. Indeed, recent events have only increased China’s influence- to the point where China is poised to edge out the United States and take the lead. For investors like you, this tectonic shift poses difficult challenges- along with tremendous opportunities.

In China’s Rise and the New Age of Gold, one of the 21st Century’s top economic experts, Stephen Leeb, lays out his compelling argument that explosive gains in gold lie ahead. Gold’s price will increase dramatically to as high as $20,000 an ounce. Investing in gold will be the best (and perhaps only) way to generate substantial investing profits in this decade and beyond.