Interactive Brokers USGOLD

Discussion of the Gold portion of the Permanent Portfolio

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Kbg
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Interactive Brokers USGOLD

Post by Kbg » Tue Jul 13, 2021 8:23 am

For the gold experts, thoughts/opinions? Seems like an excellent way to buy/hold.

(Skip the I have to have physical control of it arguments. Obviously this is convertible gold on paper)

https://www.interactivebrokers.com/en/index.php?f=3187
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Mark Leavy
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Re: Interactive Brokers USGOLD

Post by Mark Leavy » Tue Jul 13, 2021 1:11 pm

I did a quick check on my account to see what the fees would be. I got back a message that "Your account is not eligible for Forex".
I wasn't interested enough to pursue it, but it seems interesting. Thanks for the tip.

Also, from the page that you listed, it appears that you can take delivery of gold futures. I had thought that IBKR never allowed delivery on futures. I may look into that as a possibly inexpensive way to purchase physical.

EDIT: To check this for yourself, setup an order entry in your trader workstation to buy 1 USGOLD. Then, before submitting the order, click on the advanced button. Then, click on check margin. Normally that will show you the full impact of the trade you are about to make - including all fees, etc. In this case, I get the ineligibility message.
Last edited by Mark Leavy on Tue Jul 13, 2021 1:27 pm, edited 1 time in total.
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Re: Interactive Brokers USGOLD

Post by Mark Leavy » Tue Jul 13, 2021 1:19 pm

In poking around on IBKR"s site, it appears that to trade Forex (and thus trade USGOLD) one has to be an Eligible Contract Participant.

I found this definition:
(A) an eligible contract participant described in clause (i), (ii), (v), (vii), (viii), or (ix) of paragraph (18)(A) that, in connection with its business—
(i) has a demonstrable ability, directly or through separate contractual arrangements, to make or take delivery of the underlying commodity;
(ii) incurs risks, in addition to price risk, related to the commodity; or
(iii) is a dealer that regularly provides risk management or hedging services to, or engages in market-making activities with, the foregoing entities involving transactions to purchase or sell the commodity or derivative agreements, contracts, or transactions in the commodity;

So, as far as I can tell, I won't be buying any USGOLD from IBKR any time soon. I'd be curious Kbg, if you find something different.
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Re: Interactive Brokers USGOLD

Post by modeljc » Tue Jul 13, 2021 2:36 pm

Mark Leavy wrote:
Tue Jul 13, 2021 1:19 pm
In poking around on IBKR"s site, it appears that to trade Forex (and thus trade USGOLD) one has to be an Eligible Contract Participant.

I found this definition:
(A) an eligible contract participant described in clause (i), (ii), (v), (vii), (viii), or (ix) of paragraph (18)(A) that, in connection with its business—
(i) has a demonstrable ability, directly or through separate contractual arrangements, to make or take delivery of the underlying commodity;
(ii) incurs risks, in addition to price risk, related to the commodity; or
(iii) is a dealer that regularly provides risk management or hedging services to, or engages in market-making activities with, the foregoing entities involving transactions to purchase or sell the commodity or derivative agreements, contracts, or transactions in the commodity;

So, as far as I can tell, I won't be buying any USGOLD from IBKR any time soon. I'd be curious Kbg, if you find something different.

I went to Account Management and then trade commodities entered USGOLD for a day trade at $1790 to buy 1 contract. They asked me to read 4 risk disclosers and then I requested permission to trade. They said my account was eligible and that approval would take 48 or so. Appears to be straight forward for IB.
and state that I understood the risk
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Re: Interactive Brokers USGOLD

Post by modeljc » Tue Jul 13, 2021 2:48 pm

modeljc wrote:
Tue Jul 13, 2021 2:36 pm
Mark Leavy wrote:
Tue Jul 13, 2021 1:19 pm
In poking around on IBKR"s site, it appears that to trade Forex (and thus trade USGOLD) one has to be an Eligible Contract Participant.

I found this definition:
(A) an eligible contract participant described in clause (i), (ii), (v), (vii), (viii), or (ix) of paragraph (18)(A) that, in connection with its business—
(i) has a demonstrable ability, directly or through separate contractual arrangements, to make or take delivery of the underlying commodity;
(ii) incurs risks, in addition to price risk, related to the commodity; or
(iii) is a dealer that regularly provides risk management or hedging services to, or engages in market-making activities with, the foregoing entities involving transactions to purchase or sell the commodity or derivative agreements, contracts, or transactions in the commodity;

So, as far as I can tell, I won't be buying any USGOLD from IBKR any time soon. I'd be curious Kbg, if you find something different.

I went to Account Management and then trade commodities entered USGOLD for a day trade at $1790 to buy 1 contract. They asked me to read 4 risk disclosers and then I requested permission to trade. They said my account was eligible and that approval would take 48 or so. Appears to be straight forward for IB.
and state that I understood the risk
MORE: Minimum commission of USD 2.00 per trade, and monthly storage fees of . 15 per ounce are applicable to USGOLD.
Also no SIPC as it only covers cash and securities.
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Mark Leavy
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Re: Interactive Brokers USGOLD

Post by Mark Leavy » Tue Jul 13, 2021 3:59 pm

modeljc wrote:
Tue Jul 13, 2021 2:36 pm
I went to Account Management and then trade commodities entered USGOLD for a day trade at $1790 to buy 1 contract. They asked me to read 4 risk disclosers and then I requested permission to trade. They said my account was eligible and that approval would take 48 or so. Appears to be straight forward for IB.
and state that I understood the risk
Thanks. Got the same results. We'll see what happens.
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Re: Interactive Brokers USGOLD

Post by Kbg » Wed Jul 14, 2021 9:14 am

2 things

You do have to apply for and receive "metals" trading approval. Side note: Looks like the UK version of IB offers silver as well. Maybe this will come to the US? I've done this but have not traded yet.

I don't recall anything about this asset/format(?) being a future. The fact that you will be charged a storage fee indicates such. In a gold future cost of storage is imputed in the price.

modeljc,

You did take a trade correct? Any observations?
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Re: Interactive Brokers USGOLD

Post by modeljc » Wed Jul 14, 2021 11:47 am

Kbg wrote:
Wed Jul 14, 2021 9:14 am
2 things

You do have to apply for and receive "metals" trading approval. Side note: Looks like the UK version of IB offers silver as well. Maybe this will come to the US? I've done this but have not traded yet.

I don't recall anything about this asset/format(?) being a future. The fact that you will be charged a storage fee indicates such. In a gold future cost of storage is imputed in the price.

modeljc,

You did take a trade correct? Any observations?
No I did not buy it. Did apply for the approval and it is pending.
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Re: Interactive Brokers USGOLD

Post by Kbg » Wed Jul 14, 2021 9:26 pm

As of 10:14pm eastern from IB

IB Spot 1825.80 - 1826.20
GC Aug 1826.70 - 1826.80
MGC Aug 1826.70 - 1826.80

Watching it for the last 10mins

spread on the spot is .35-40, futures are .10 with no difference between the standard and micro gold futures

Of note, after hours of course.
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Re: Interactive Brokers USGOLD

Post by Mark Leavy » Thu Jul 15, 2021 4:53 pm

Update

It looks like I now have permissions to trade USGOLD. Thanks for the tip, modeljc. Interesting. The total commission doesn't change much between 1oz ($2) and 10 ounces ($2.85).

It appears that my margin availability would drop by exactly the size of the purchase - so basically no using this asset as part of your marginable securities.

Per this page, it looks like the cost of conversion to physical (and delivery) is the sum of:

1) A $500 Interactive Brokers Fee. (flat fee)
2) A $25 Shipping Fee. (flat fee)
3) The difference in price between spot and the physical product you are converting to.

The products you can convert to are listed at Fidelitrade.

So.. you end up paying the product premiums (and the spread?) on top of the flat fees.

In Summary

This looks like a really bad deal if you are trying to use it to buy physical (or think that you might want to convert at some time).
This seems like a reasonable option if you just want exposure to gold in your account (and don't trust ETFs).
This seems like a much worse option than using futures for gold exposure, as ...

You have much better margin control with futures.
The insurance and storage fees are built into the futures and are near optimal.

That's my take. Please do correct this if it looks like I misread or misinterpreted anything. And thanks again Kbg for surfacing this option.
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Re: Interactive Brokers USGOLD

Post by Mark Leavy » Thu Jul 15, 2021 10:41 pm

vincent_c wrote:
Thu Jul 15, 2021 9:45 pm
I have found the cost of owning gold futures too high for my liking. I still use it pending discovering a way that I can hold physical, yet have a way to margin against that physical. Probably not possible?

Physical is just much cheaper if you can justify not insuring it.
I don't own any gold futures. All my gold is physical.

But I'm fascinated by your opinion. I would have thought that gold futures would be the natural way to diversify a leveraged future account that also contained equity and treasury futures.

I need to rebalance into gold. My preference is physical, but I have been wondering if rebalancing into GC is a better option - as I also hold NQ and UB.

Interesting...
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Re: Interactive Brokers USGOLD

Post by Kbg » Thu Jul 15, 2021 11:11 pm

Mark,

Thanks for doing that homework. I was planning on looking into it and agree this is definitely not a good deal if one wants to convert. My guess is IB doesn't want the hassle...so while conversion is possible the fee is clearly intended to discourage it.

I'll switch my focus to looking at some of the popular "paper gold" ETFs to see if it might be a lower cost alternative. Pretty sure the math will come down to storage fee costs. I can't remember if gold etf management fees include or do not include storage costs. I think they are separate and it would be a pleasant surprise to find out that is the case and IB's storage fee cost is competitive which means skipping the annual ETF management fee.

Side note...anyone know how IB treats margin with a gold etf?
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Re: Interactive Brokers USGOLD

Post by Mark Leavy » Fri Jul 16, 2021 12:16 am

vincent_c wrote:
Thu Jul 15, 2021 11:27 pm
... having the futures offset each other’s volatility so you don’t need to keep as much cash to prevent using margin.
That was exactly my thinking.

I do like have a reasonable percentage of my net worth in physical (and out of the system) but it seems prudent to keep at least some portion of each of the equity classes in the same futures account to stabilize the margin requirements.
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Re: Interactive Brokers USGOLD

Post by Mark Leavy » Fri Jul 16, 2021 12:21 am

Kbg wrote:
Thu Jul 15, 2021 11:11 pm
Side note...anyone know how IB treats margin with a gold etf?
IB is super transparent on margin.

Just setup a "buy" order in the order entry screen of the Trader Workstation. Click "advanced" and then "check margin".

You can 'cancel' after you process the numbers.
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Re: Interactive Brokers USGOLD

Post by Kbg » Fri Jul 16, 2021 2:36 pm

So…looks like there maybe a .02% advantage over SGOL but more importantly I found the management fee does cover all expenses.

We are getting into marginal benefits here…but this product may now be the cheapest “gold etf” out there.
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