Author Topic: Differences between GTU and IAU  (Read 2441 times)

rhymenocerous

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Differences between GTU and IAU
« on: June 04, 2011, 01:29:06 PM »
I'm getting ready to commit 100% of my portfolio to the Permanent Portfolio.  I already have holdings in both stocks and cash, and I recently exchanged my shares in Vanguard's Total Bond Market for TLT.  The last piece left for me to purchase is gold.  I'm not exactly comfortable holding physical gold, so I'm trying to understand the differences between GTU and IAU.  This will be in a taxable account.  This is what I've come up with so far:

1. Both have geographic diversification.  GTU stores its gold bullion in Canada, and IAU in Toronto, New York, and London.
2. IAU has a slightly lower expense ratio of 0.25% vs GTU's 0.33% (although I need to verify this).
3. GTU seems to have better tax treatment, with long-term gains taxed at 15% rather than 28% for IAU.  However, correct me if I'm wrong, but is IAU taxed at 15% if you are in the 15% tax bracket (as I am)?  Either way, I think it's dangerous to count on these differences, as I will probably move up in tax brackets and the tax rates will probably change over time.
4. GTU trades at a premium or discount to NAV.  Does this even out over time?  I saw a growth chart for IAU and GTU starting around 2009 and there was a difference of almost 20%.  Also, how do you check what the premium or discount is for GTU?  Can you just go to this link: http://www.gold-trust.com/asset_value.htm?
5. Both IAU and GTU seem to cause a headache around tax time in terms of the forms you have to fill out, so I'm not sure which is worse.
6. GTU claims in the latest annual report that at least 90% of its assets are backed by physical bullion at all times.  The gold can't be loaned, and it is inspected annually and spot inspected periodically.  IAU is also backed by physical gold, though I'm not sure how much it is required to have on hand.  An FAQ document on the iShares website states that the gold can't be lent out.  Also, vault inspections are conducted twice a year and inspection certificates are available online.
7. IAU potentially has counter-party risk.  I'm not sure I understand the full implications of this exactly, but does it have to do with JPMorgan Chase being the custodian of the trust?
8. I'm not sure about this point either, but I read in an earlier post that investors in IAU are protected if iShares goes out of business, but investors in GTU would lose all of their money if the parent company were to go bankrupt.

Please add or correct me on any of the points above.  It seems that after weighing all of these option IAU is the better choice for me, but I still am considering GTU.
« Last Edit: June 04, 2011, 01:35:45 PM by rhymenocerous »

MediumTex

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Re: Differences between GTU and IAU
« Reply #1 on: June 04, 2011, 01:56:47 PM »
I would probably do IAU to start, solely because of GTU's premium/discount to NAV risk.
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foglifter

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Re: Differences between GTU and IAU
« Reply #2 on: June 04, 2011, 01:59:33 PM »
Here's a nice real-time matrix somebody put together to check the price of gold/silver and the premium/discount for GTU and other closed-end funds:

https://spreadsheets.google.com/spreadsheet/ccc?key=0AsAy8x4Mq0aSdEsyeFFUTERtY2JHZ05uRU5PV21KZkE&hl=en_US&authkey=CPmaiOsH#gid=1
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AdamA

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Re: Differences between GTU and IAU
« Reply #3 on: June 04, 2011, 04:42:49 PM »

7. IAU potentially has counter-party risk.  I'm not sure I understand the full implications of this exactly, but does it have to do with JPMorgan Chase being the custodian of the trust?


The difference between these two is that GTU is a close ended fund, and IAU is an ETF, which has a custodian.

A close ended fund (CEF) is a fund that owns a fixed number of assets (gold, shares of stock, etc) and sell these shares to buyers.  Because of this, demand for a CEF may differ from the demand for the actual asset (although practically speaking this shouldn't be a very big difference). 

An ETF attempts to track the price of an asset as closely as possible.  As a result, the price will mimic the price of the actual asset more closely than a CEF.  However, how the custodian of that ETF attempts to track the price of the asset varies from fund to fund.  Some funds, especially large stock ETFs like SPY, function in a way that is similar to CEFs in that they own shares of the underlying asset.  The thing is, some funds track the underlying asset using futures or other more exotic instruments.  This can cause (1) tax issues, and (2) counter party risk.  ie, if an ETF uses gold futures to track the price of the gold and there a solvency issue at the COMEX and they can't pay the custodian, you may be out of luck (as far I know, this has never happened...to an ETF). 

I think these are the main differences, but I am not an expert by any definition. 

I like GTU, by the way.
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hrux

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Re: Differences between GTU and IAU
« Reply #4 on: June 04, 2011, 04:56:56 PM »
Read this blog for another insight on GLD, IAU, etc...   Personally I am not comfortable owning GLD or IAU and prefer GTU and CEF if you want silver exposure as well

http://harveyorgan.blogspot.com/


steve

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Re: Differences between GTU and IAU
« Reply #6 on: June 25, 2011, 09:35:52 AM »
I use  GTU for my taxable account along with some core bullion. I like GTU for rebalance purposes and I like the fact that it is a closed end fund. I also like the long term capital gains rate as compared to IAU. Whatever tax bracket you are in the long term gain rate is better rate  then the collectable gain rate. The annual paperwork to file with my tax return doesn't bother me.