Help me understand this dilemma?

[fishdrzig]

Ok, I am a PP investor and have heard/read everything I can from Harry Browne et al......
Presently 25% of my PP is in gold ETF's  IAU, SGOL, GTU all in a tax deferred IRA (I am not even sure if these ETF's pay me any income in dividends) but it is highly liquid.
I own no physical gold bullion/coins.
By playing devils advocate here, change my mind as to why I should reconsider my gold position and have possesion of some physical gold coins.
When forming an argument, please take into consideration buying the gold (I live in Pennsylvania),storing the gold, reselling the gold to rebalance and taxes incurred etc....  I want the whole picture, I think I am missing something.
Thank you for your time.

[ns3]

I don't know if anyone will want to play devil's advocate with you on the subject. You should do whatever feels right to you.

I will tell you that I was in an identical situation when I started my PP with all my gold in tax-deferred ETF's. I resisted the idea of buying physical gold for all the reasons you have stated. It was only at the beginning of last year that I began making the transition to physical. The year before I almost did it but the whole idea of where to store it, etcetera, stressed me out so much I couldn't pull the plug. As for my eventual motivating factor, I would say that holding all that gold in ETF's starting stressing me out more than the idea of holding physical.

So last year I started with 5 coins, purchasing them with cash I was sitting on so there were no tax consequences (an important consideration, of course - selling stock and giving 15% of the profit to the government to buy physical gold didn't make a lot of sense to me). I liked the feeling so much I continued to do this with new cash for the rest of the year as long as gold was lagging.  With the drop in gold price I so far haven't needed to sell any of the ETF gold told to stay in balance. My plan right now is to keep enough of the ETF gold in the non-taxable accounts that I never have to sell the physical. I'm just going to hold it as my insurance policy and maybe somebody will inherit it some day.

(And BTW, the first coins I bought were around $1700 but by DCA'ing during a year the price was dropping I'm about at the break-even point with my whole stash).

[fishdrzig]

NS3
Thanks for the response.  May I ask, did you buy American Eagle coins?  Not to be nosy but what eventual storage solution did you settle on?
Did you ever consider physical gold in an IRA account?  Thanks

[rickb]

Presently 25% of my PP is in gold ETF's  IAU, SGOL, GTU all in a tax deferred IRA (I am not even sure if these ETF's pay me any income in dividends) but it is highly liquid.
I own no physical gold bullion/coins.
By playing devils advocate here, change my mind as to why I should reconsider my gold position and have possesion of some physical gold coins.

Do you know exactly how IAU, SGOL, and GTU work?  Since you apparently don't know if they pay income dividends my guess is you don't.  I wrote up a slightly tongue in cheek version of how the gold ETFs work a while ago, see http://gyroscopicinvesting.com/forum/go ... etf/.  Note that GTU and PHYS are substantially different.

The basic issue is one of safety.  If you buy gold you hold in your hand no one else has their hands on it.  If you buy gold you store in a safety deposit box, the number of people involved now expands to include the bank.  If you buy shares of a closed end fund like GTU or PHYS, the number of people involved now expands to include the fund operators (in addition to the bank they use to store the gold).  If you buy shares of an ETF, the linkage to "your" gold now involves (at least) the fund's trustee, a separate custodian, sub-custodians the custodian may use, and all of the authorized participants.  Can you even name who these companies are for IAU or SGOL?  By investing in these ETFs you are trusting all of these companies with a large portion of your net worth.  How confident are you that none of these companies will turn into the next MF Global?  Are you willing to bet 25% of your net worth?

The prospectuses for the ETFs all include a section on risk factors.  It's worth reading these.  See http://seekingalpha.com/article/262084- ... tody-risks

[ns3]

NS3
Thanks for the response.  May I ask, did you buy American Eagle coins?  Not to be nosy but what eventual storage solution did you settle on?
Did you ever consider physical gold in an IRA account?  Thanks

Yes, I have only bought American Eagles so far but may purchase some other kind in the future. I also bought one of the Gold balances because my wife is a very un-trusting person and I wanted to prove to her they were real. I still don't think she gets how the balance works though.

As for storage, I keep them on my boat (you can read through the forum to get the joke and and also the best suggestions for storage).

No, I never considered physical gold in an IRA account. You have to have a third party custodian and to me, that's not a whole lot different than an ETF. Actually, I suspect a publicly traded ETF would come under more scrutiny than a smaller IRA custodian. Gainesville coins does offer this, BTW.

[Ad Orientem]

The only really compelling argument for physical over electronic/paper gold to my mind, is that gold is your disaster insurance. While we all hope that no great catastrophe will occur in our lifetime, these events tend to happen with greater frequency than most of us want to admit. And they rarely make appointments. In a serious SHTF type scenario, financial exchanges may be closed for a period of time making your gold holdings moot. Governments looking to expropriate gold will find the stuff held by the giant ETFs a very easy target.

I am actually fine with ETFs for all of the other assets. But gold is the one I really think should be held at least partly in physical form with a minimum amount of entities, or counter-party risk, between you and your gold. That said, obviously you will need secure storage arrangements.

But in the end it comes down to hedging against something you pray won't ever happen. I try to think of gold as the financial equivalent to catastrophic health insurance.

[Pointedstick]

But in the end it comes down to hedging against something you pray won't ever happen. I try to think of gold as the financial equivalent to catastrophic health insurance.

Does that mean we should expect it to become prohibited by law and replaced by ObamaGold?