Gold ETFs: diversification?

kidmugsy

I've just read a comment elsewhere pointing out that you can buy different gold ETFs where the gold is kept in vaults in London, Zurich and Singapore respectively. Is there any obvious advantage or disadvantage in using an ETF with an overseas vault?

E.L.James

kidmugsy wrote: »

I've just read a comment elsewhere pointing out that you can buy different gold ETFs where the gold is kept in vaults in London, Zurich and Singapore respectively. Is there any obvious advantage or disadvantage in using an ETF with an overseas vault?

If you are worried about confiscation or something then do not invest in ETFs. Buy the bullion yourself and take possession then there are no storage charges.

If you trust the paper promises then it does not matter which virtual vault your paper promises say your bullion is supposed to be in.

As for me I do not trust the paper promises no matter which vitual vault they say your bullion is in. I think there are over 100 times the amount of paper ounces like ETF's in the world for every one once of physical. As long as people carry on trusting the paper promises and do not take possession of real bullion the music continues. But if the music stops and there is a rush of paper promises into real bullion then there are not nearly enough chairs.

IronWolf

kidmugsy wrote: »

I've just read a comment elsewhere pointing out that you can buy different gold ETFs where the gold is kept in vaults in London, Zurich and Singapore respectively. Is there any obvious advantage or disadvantage in using an ETF with an overseas vault?

An overseas vault protects you from one government confiscating the gold, if that worries you.

redbuzzard

I don't think I'd be significantly more worried about holding a physical gold ETF in general than I would about unit trusts/OEICs, subject to the trustee and the custodian - in the case of PHGP for example, the trustee is Law Deb and the custodian HSBC. This fund is vaulted in London but for me the location is less important than allocated metal and the covenant of the counterparties.

Are you thinking in terms of possible seizure by a mad government, and/or something regulatory/legislative? If so then Zurich might be better (though I have no idea how to know objectively) - SGBS is vaulted in Switzerland, the trustee is the same, and the custodian is JPM.

I'd certainly be more worried about hiding bullion round the house.

I won't be holding either of these - though I have been wondering whether to up my holding of Troy Trojan, currently 13% in gold IIRC, which has done it no good at all since I bought it!

Reaper

E.L.James wrote: »

Buy the bullion yourself and take possession then there are no storage charges.

Presumably you have to pay extra for insurance, or run the risk of losing the lot in a burglary. With the odds of being burgled at 2-3% I would estimate the risk of that as higher than having your gold seized without compensation by the government.

kidmugsy

Reaper wrote: »

Presumably you have to pay extra for insurance, or run the risk of losing the lot in a burglary. With the odds of being burgled at 2-3% I would estimate the risk of that as higher than having your gold seized without compensation by the government.

I regret that all our local bank branches have closed their safety deposits - one of their few discernible advantages over online banking or building societies.

grey_gym_sock

if you're worried about government confiscation, then you have to look at the whole chain: not just where the physical gold is, but the trustee, custodian, and whoever else is involved. so long as you deal with retail investment products available in the UK, you're unlikely to be beyond the reach of the UK government.

the downside of putting your assets beyond the reach of the UK government is that then they're within the reaches of another government, and 1 which won't lose any votes by treating UK citizens unfairly. hence the usual advice that it's safer for a UK citizen to rely on the UK deposit protection scheme than on another country's similar scheme, even if the other country is equally stable and reliable.

if you're rich enough that you can divide your assets into several parts, any 1 of which would be sufficient to live off; and also rich enough to be easily allowed to move to any country: then you might choose to put each of those parts of your assets in a different country, so that you could move to any of those countries in a range of extreme and unlikely scenarios. that would obviously include any gold you might be holding, but also bank accounts, other investments, and perhaps homes.

but if you're not doing that, i'm struggling to see much advantage in having some gold physically in switzerland, when it's not not enough to live off if you lost your other assets, and you wouldn't get residence in switzerland, and where the trustee and custodian are answerable to UK law.

Daniel_Elkington

Gold in itself does not offer diversification.

If you are looking to invest in collectables or hard commodities then I would go for a fund which does this - invests across the sector, rather than one specific asset type.

Investing in gold is like saying 'I'm going to invest in a portfolio of UK Equities consisting solely of Vodafone shares'. There are other hard commodities available which provide good diversification, use them all!

merlingrey

Daniel_Elkington wrote: »

Investing in gold is like saying 'I'm going to invest in a portfolio of UK Equities consisting solely of Vodafone shares'.

That's because Vodafone can go bankrupt if it couldn't go bust or couldn't lose earnings I would invest 100% in Vodafone.

Its not the same at all, not even close.

E.L.James

kidmugsy wrote: »

I regret that all our local bank branches have closed their safety deposits - one of their few discernible advantages over online banking or building societies.

Not as safe as taking possession yourself. Safe deposit boxes are not private they could be confiscated just the same. But when USA confiscated gold last time in the 1930s anyone who held it privately could chose weather to break the law and not hand it over. You do not get that choice in a safe deposit box or paper promise like an ETF.

Daniel_Elkington

Ok, so the metaphor is flawed - the point is still valid.

Gold can go bust - a nation can seize the gold and ban trades - it's quite a good metaphor, just not perfect:D