Paper gold ain’t as good as gold

J. Keith Johnson Senior Writer, The Gold Informant
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In today’s international market of pirating videos, phones, computers and other brand name goods, we’ve become somewhat accustomed to the reality that it’s going to happen. And there’s a whole plethora of knockoffs out there, some legal and some not. And, quite often, the knockoff actually performs as well as, or even better than, the original.

With this in mind, it’s often difficult to decide whether to buy the original brand name or a knockoff. One wants to reward the ingenuity of a company and attempt to do things on the level. But nobody wants to pay more than they have to. We all want the best bang for our buck.

This is part of the reason why we’re easily drawn to such things as GLD, SLV and other such means of “owning” gold. By being able to simply click on a ticker in your trading platform, you can supposedly “invest” in gold, silver, platinum, cows, pigs, corn or just about any other asset, without the spreads typical in the retail market. But how often do these “shares” actually represent specific or allocated goods?

The answer may shock you. In an interview with Silver Doctors, Harvey Organ claims that SPDR Gold Trust (GLD) lays claim to vaulted gold that is also claimed by the Bank of England, COMEX, LBMA and Arab investors. Now that’s leverage!!

For investors in GLD, this means that there really can’t be specific gold allocated per share. In fact, many have speculated that less than half of the GLD shares currently distributed are represented by actual gold. And GLD is not required to insure their holdings against theft or fraud. While this might not matter to the day trader, it could be catastrophic for the average investor. Furthermore, by offering shares of gold that aren’t really represented by actual physical gold, such ETFs are artificially increasing supply to meet demand. The ramifications when this comes to bear could be staggering.

A perfect example of how this can happen is found in the recent Wall Street Journal article reporting on the collapse of Amber Gold in Poland. According to Zero Hedge:

… Amber Gold: a gold-based investment ponzi scheme out of Poland, in which it is likely needless to say that the gullible investors never had actual possession of the gold. And when they tried, it was gone. All gone.

Some organizations have attempted to overcome this, such as HAA, with their vault-based, fully allocated trading and an option to take delivery. HAA claims to be unique because the investor can buy and sell online. But many dealers have online ordering. And most offer vaults, especially if they offer precious metals IRAs.

What it comes down to is that there is no substitute for physical gold. Whether you have it vaulted, in an IRA, take personal delivery or any combination of the three, only by owning fully allocated and specific metals is the investor protected. And if your gold is in storage somewhere, make sure that it’s fully insured. Vaults should be inventoried regularly by independent auditors.

There’s no sense in taking chances with paper that claims to be gold, and yet refuses to commit to protecting such claims. Protect your hard-earned investments with due diligence and by working with a company that can guarantee and insure allocated holdings.

J. Keith Johnson’s Austrian and libertarian perspectives on current socioeconomic and geopolitical affairs are fueled by his insatiable desire to both discover and share the truth. A Goldco Direct affiliate, you’ll find his commentary on The Gold Informant website, as well as various Internet financial and news sites.