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Not All Forms Of Gold Ownership Are Equal

Ultimately, the value of gold is based on its tangibility. So, why do so many investors assume they’re getting the same protection from investments like gold futures that they’re getting from physical gold: while gold futures and ETFs will fill most of the needs of owning gold in normal circumstances, in extraordinary circumstances, something that’s intangible like a futures contract just won’t do. Because how will you collect your gold from the custody bank when all the banks have failed?

This week, the Goldnomics podcast ranks the safest ways to own gold to the least safe. The safest is, of course, owning physical gold bars. The next safest is to own allocated and segregated gold, which is owning physical gold kept in a separate physical account. The next level of safety is unallocated gold, then there are physically backed-ETFs and non-physically backed ETFs.

Further out the safety spectrum is owning shares of gold miners, which trade like equities (because they are). However, the vast majority of investors own gold via an ETF.

While it’s an easily accessible way of owning gold, it’s not designed for physical deliverability. “The idea of having gold in a systemically linked instrument like that could be convenient in normal times but when things get out of hand, suddenly those contracts don’t bear any weight.”

Like Alan Greenspan said, Gold is trusted by everybody as a form of payment. And indeed, most gold investors own the precious metal for its tangibility. And reading the fine print of these ETFs, the fund manager is protected from ever having to be found liable for delivering its gold. Instead, the gold is stored with large custodian banks, and if there’s ever any serious systemic risk, the owner of the ETF won’t ever be made hole.

“Don’t think you’re checking that hedging box if you own gold through an ETF, or a digital gold provider.”

Listen to the rest of the podcast below:

How I Own My Gold

How I Own My Gold

Those who own gold often argue how to best own it. I encourage anyone holding gold to assess the pros and cons of different choices of gold ownership to make an educated rather than emotional decision. Let me explain.

I commissioned the above cartoon back in 2011 in response to an assertion by CNBC’s Steve Liesman no one would accept a gold coin in a grocery store. My take was that, hell, if I offered a gold coin, I’m pretty sure I would find a taker if I wanted to exchange it for some groceries.

There appears to be an eternal back and forth between those that “love” and those that “hate” gold; that discussion, in my humble opinion, misses the point. It is striking how this shiny metal raises emotions by both friends and foes. Maybe it is because gold is so simple, so pure, the fact that there are fairly few industrial uses for it, that emotions take over in discussing gold’s merits.

The historic context matters. Gold has been used as money for millennia; yet some say it is a “barbaric relic” preferring to use fiat currencies for commerce. All major currencies are fiat currencies these days, that is, they can be created ‘out of thin air’, by the stroke of a keyboard at a central bank. The modern world of fiat currencies, is in place in its current form since 1971 when Nixon ‘temporarily’ abandoned the last link to gold. The very notion of currency has been used in new ways as promoters of virtual tokens subject to a decentralized creation and sharing methodology referred to as crypto-currencies have touted that they will disrupt the way we transaction and store value. The value of crypto-currencies, of course, has been highly volatile, and none of this should be construed as an investment recommendation.

…click on the above link to read the rest of the article…

Olduvai IV: Courage
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Olduvai II: Exodus
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