“And gold is always accepted and is the ultimate means of payment and is perceived to be an element of stability in the currency and in the ultimate value of the currency and that historically has always been the reason why governments hold gold.”  *Alan Greenspan testifying to Congress 5/99

In today’s financial marketplace there are many ways to own gold. The stock and commodity world offer a wide range of fancy trading products labeled “gold”. It is important to clearly understand when you buy one of these products if you own actual physical gold? More often than not, the answer is no! A lot of the today’s popular financial products are paper representations of gold. One such example is the precious metal ETF. Similar to common stock, an SPDR precious metals ETF is a paper promise. For the retail shareholder, it is not actual ownership of any physical gold.

As we all know, paper….is not metal. Paper has no intrinsic value. Paper is a promise to pay and very different from the shiny gold metal which is accepted as money in every country on earth.

A precious metal ETF or exchange traded fund is a type of financial product created by the good folks on Wall Street. This convenient financial product offers investors “exposure” to the movement in gold price. For the consumer, ownership in this kind of ETF us NOT legal title to any specific gold.

The SPDR gold ETF, symbol GLD, is commonly represented as being actual physical bullion.

It is not.

GLD is a fund, an Exchange Traded Gold ™ Security. It more closely resembles a a stock, than it does bullion. It’s price in the marketplace moves similar to the price of the actual metal but owning GLD is NOT owning the actual physical gold.

“SPDR® Gold Shares (GLD) offer investors an innovative, relatively cost efficient and secure way to access the gold market. Originally listed on the New York Stock Exchange in November of 2004, and traded on NYSE Arca since December 13, 2007, SPDR® Gold Shares is the largest physically backed gold exchange traded fund (ETF) in the world. SPDR® Gold Shares also trade on the Singapore Stock Exchange as well as the Tokyo Stock Exchange and the Stock Exchange of Hong Kong.”  *http://www.spdrgoldshares.com/

In between phrases like, “largest physically backed gold exchange traded fund” and “cost efficient and secure way to access the gold market.” it may sound a lot like real gold ownership, it is not. In reality, a GLD investor does not own or hold legal title to  any physical gold. From the prospectus: Page 10 “If the Trust’s gold is lost, damaged, stolen or destroyed under circumstances rendering a party liable to the Trust, the responsible party may not have the financial resources sufficient to satisfy the Trust’s claim.”  Page 9 “The Trust does not insure its gold.”  Further on page 12 “Gold held in the Trust’s unallocated gold account and any Authorized Participant’s unallocated gold account will not be segregated from the Custodian’s assets.  If the Custodian becomes insolvent, its assets may not be adequate to satisfy a claim by the Trust or any Authorized Participant.  In addition, in the event of the Custodian’s insolvency, there may be a delay and costs incurred in identifying the bullion held in the Trust’s allocated gold account.”

Ownership of this fund exposes your money to increases (and drops) in the price of gold and there are some tax benefits to this type of profitable transaction as it is likely to be taxed at a lower rate than selling an actual gold bar. However, as with any investment in precious metals, you should ask yourself, if you really own actual metal? With GLD the answer is NO.

Unlike the GLD fund shares, physical gold is not subject to any counter-party risk. Whether you own physical gold coins in your pocket or professionally vaulted gold, like a digital gold, you are safe from the perils of GLD and “paper gold”.

The GLD prospectus states that, “Investing in the Shares involves significant risks. See “Risk Factors”. That seems to be a gross understatement, here are some of the risky issues in this Wall Street financial product. Experts in the precious metals industry have been able to closely evaluate the offering prospectus for the SPDR Gold Shares fund (GLD) and some rather startling problems turned up.

“For these reasons including (1) the quality of the gold is at issue, (2) no audit of the physical metal is permitted, (3) counter-party risk impregnates the investment vehicle and (4) there are strong conflicts of interest with complicit players in the central bank gold price suppression scheme; GLD and SLV appear impotent in reducing inflation or counter-party risk.”  *Trace Mayer, J.D. http://www.runtogold.com/2008/12/a-problem-with-gld-and-slv-etfs/

Operating one of the largest digital gold companies in the world, Mr. James Turk of GoldMoney.com had this to say, “If GLD declared its asset to be “Gold”, the fund’s auditor would have to substantiate that the gold really exists, which GLD of course cannot do because of the inability to audit or even inspect gold stored in subcustodians and sub-subcustodians, which is a risk noted in the prospectus.”

Unlike paper traded financial instruments such as GLD, physical gold ownership through a digital gold company is actual legal title to the precious metal. Digital gold offers many of the same benefits of paper gold without the serious counter-party risk. Let’s examine BullionVault which is the world’s #1 gold ownership service online.  As transactions are completed online from the comfort of your home or office using the Internet, we often refer to this type of business as a “digital gold” company. Additionally, this online service is independent of banks. This business allows customers to place buy or sell order anytime day or night 24/7 – 365 days a year.

Outright Ownership of 100% Gold

Don’t confuse buying physical gold through BullionVault with types of paper gold investing as previously discussed.  BullionVault offers every client the outright ownership of an amount of gold. Each client owns the physical gold and it is their legal property. All precious metal is stored in high-security vaults located in Zurich, London & New York then  independently inspected by an LBMA-accredited company.

Via Mat is the storage operator for BullionVault and each day Via Mat makes available a daily bar list of BullionVault’s gold holdings(with bar numbers). The list is then published on the BullionVault website. Another valuable measure of transparency occurs daily when the company publishes the actual metal balances of each customer account. These are visible from the BullionVault web site but of course for privacy reasons, each investor is represented on the daily list by a generic nickname. Compare this with GLD where no audit of the physical metal is permitted.

For precious metal traders, The London Bullion Market Association (LBMA) is the professional trade association which represents the wholesale market for gold and silver in London. This organization sets the rules for all standard bullion bars known as “good delivery bars”. BullionVault along with its independent storage operator Via Mat are both members of the of the LBMA. In fact, Via Mat is one of the world’s largest vault operators.

Furthermore, the easy to open account at BullionVault offers consumers a platform to buy or sell any quantity of physical bullion and the account holder is the legal owner of record for that amount of precious metal. BullionVault offers a powerful and cost effective platform for anyone, from the comfort of their own home, to buy precious metal. However, in contrast to GLD, the gold held in this company is counter-party risk free, audited, verified and insured.

Today, even the smallest investor can go online and purchase investment grade gold or silver and sell it anytime for an instant settlement. Whether you own bars, coins or professionally vaulted digital gold, don’t settle for paper promises. Don’t put your trust in Wall Street. Alen Greenspan spoke the truth, “…gold is the ultimate form of payment.” Caveat Emptor, be sure you own physical gold and not a paper promise.

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