SMI Visitor's Weblog

Welcome to the SMI Visitor's Weblog. Below you'll find selected excerpts reprinted from our Member's Weblog, plus occasional posts created especially for our visitors.

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Paper vs. physical gold

In our September cover story, A Road Map For Investing in Gold (web membership required, sign up here), Austin tackled the issue of buying paper gold (like an ETF based on the gold price) vs. owning real, physical gold. Basically, his view was that paper gold is fine to trade if all you're trying to do is make a profit on the increase in gold's price over the short-term. But for those who envision a long-term move in gold based on an accelerating devaluation of the dollar, being an accumulator of the physical metal itself seems like a better idea.

With that in mind, I found this warning from the World Gold Council (via the Uncommon Wisdom blog) to be very interesting:

There is approximately 78 times more "paper-gold" being held by investors than physical gold in existence on this planet that has ever been mined, according to the World Gold Council.

As this clearly implies that un-backed "paper-gold" accounts may be subject to the risk of default, investors should stay clear of buying paper-metal accounts from banks and make sure that any precious metal investment vehicle used does actually store the metals in a fully unencumbered, "un-leased" and physical form.

Not surprisingly then, the author comes to a similar conclusion as Austin at the end of this similar blog post on the dangers of paper silver:

My point is that while I prefer to hold physical gold and silver, I think there’s nothing wrong with using the SLV (or the GLD or DGP, for that matter) for a trade. It's much easier than shlepping down to a precious metals dealer and buying physical gold and silver with the intention of selling it later.

Physical gold and silver you buy and HOLD. Paper gold is fine for trading.

If you're thinking at all about investing in precious metals, it would be time well spent to read our recent two-part cover article: A Dollar in Danger Leads Many to Gold, and A Road Map for Investing in Gold. Web members will also find links to our specific primers on gold coins, gold bars, and gold funds at the bottom of that second article.

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