Monday, September 21, 2009

New Gold ETF Houses Bullion In Switzerland

At Wade Financial Group, Inc., we own several ETFs that own gold bullion, primarily SPDR Gold Shares (GLD). When used as part of a well-diversified portfolio, ownership of physical gold may potentially reduce overall risk and may ultimately assist with a greater wealth preservation of the portfolio. We believe having a small portion of a well-diversified portfolio in gold is prudent, especially at this time.

In our mutual fund, we own 0.5% in (GLD) and 0.5% iShares Silver Trust (SLV). Our fund also owns precious metals via Managed Futures contracts via several Managed Futures mutual funds and an ETF. We have recently purchased shares of a new gold bullion based ETF, ETFS Physical Swiss Gold Shares (SGOL).

Background on GLD

Each share in GLD is offered by State Street Global Advisors. The trustee for GLD is Bank of New York who does not deal directly with the public. The trust handles creation and redemption orders for the shares with authorized participants, i.e. State Street.

The gold that underlies GLD shares is held in the form of allocated 400 oz. London Good Delivery Bars in the London vaults of the Custodian, HSBC Bank USA. The custodian is responsible for the safekeeping of the gold held on behalf of the trust. The safekeeping methods are essentially no different from those that have operated without a problem in the London market for centuries. Those safeguards have stood the test of time for both individuals and institutions (including many governments) that store their gold in London vaults. State Street has tremendous confidence in the custodian's efforts to ensure the safety of GLD’s gold bullion.

Background on SGOL

The sponsor of ETFS Physical Gold Shares (SGOL), ETF Securities has established itself as a market leader in the European ETF market, with assets of more than $13 billion in over 130 products. JP Morgan serves as the custodian for the new ETF Securities fund.

(SGOL) is designed to cater to gold buyers who want to guard against extreme situations. The British company will hold its gold in Switzerland, which is "probably one of the most independent countries in terms of political influence," said William Rhind, head of sales and marketing for ETFS Marketing, the marketing arm for ETF Securities.

The vast majority of gold is stored in London and the U.S. SPDR Gold Shares (GLD), the world's largest gold fund, has all its bars stored with HSBC Holdings in London. (SGOL) will store its metals in Zurich in vaults managed by J.P. Morgan Chase.

"With regards of terrorism, war and all sorts of extreme events, the feeling is that Switzerland is probably the safest venue to store gold," Mr. Rhind said. “The feedback that we’ve received from investors is that they would like to be able to hold their gold in Switzerland for a number of different reasons including diversification of geography, vault, custodian and issuer.”

Don’t Buy Gold Coins Unless You Are a Coin Collector!

While most consumers hear/see the countless advertisements for investing in gold coins, etc, attempting to own gold in this fashion has several disadvantages:

  1. You never really know if you are “getting a good deal” as there is now “exchange” that would allow for daily pricing and liquidity.

  2. You will pay an imbedded commission as part of your purchase.

  3. You will then have to safely store your gold somewhere other than a drawer in your bedroom!

  4. It is very hard to get an ongoing picture of how your overall investment portfolio is doing, when you really have no idea how your gold is contributing (either positive or negative) to your results.
Investing lesson:

It’s OK to buy your favorite performing artists’ CDs and DVDs via 1-800 numbers but avoid investing in gold via such methods.

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