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Minyan Mailbag: Buying Bullion?


Alarmism about gold ETFs unfounded.

Dear Professor Lewis,

Do you have any recommendations on how the average investor can buy physical gold, besides the GLD? I want to diversify my gold holdings. My research suggests that the Perth Mint may be a good way, but I would like to get your thoughts.

Minyan Aaron

Dear Minyan Aaron,

Given the high volume of emails that have recently been circulated that are trying to discredit the GLD ETF, I can only assume this question is prompted by one of these spurious rumors. If not, I apologize for boring you with what will follow.

The quick answer, as far as alternatives to GLD go, is to take a look at Central GoldTrust (GTU) or the Central Fund of Canada (CEF), which are both publicly traded gold trusts (though CEF holds silver as well as gold). Also, unlike the GLD, both CEF and GTU can trade at large premiums to NAV from time to time.

Now that I've answered that first question, let me start by saying that the GLD ETF is probably the best way for the average investor to buy gold due to its liquidity, even though I know many have recently tried their best to discredit the ETF and inspire fear in others. I actually wrote about this very subject last night, so it's fairly fresh in my mind.

For weeks now, I've been receiving emails asking about persistent Internet nonsense suggesting that GLD is a "scam," or that it owns derivatives of gold, rather than physical gold, or that the custodian's bankruptcy could potentially take the ETF's gold down with it , etc. These spurious rumors go on and on (I received a flood of terrified emails just yesterday afternoon after somebody blasted out some silly email trying to inspire fear about GLD).

These rumors are complete and utter lunacy, and in most cases are being generated by those who stand to benefit from investors buying physical gold from them as opposed to the GLD or some other gold trust, such as GTU or CEF. The fact is that the GLD is probably the best thing that ever happened to gold from an investment standpoint, and it inhaled another 35 tonnes of bullion just yesterday to bring its holdings up to over 970 tonnes.

Click to enlarge

That means the GLD ETF is just 70 tonnes away from passing up Switzerland to become the sixth largest holder of gold in the world!
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Positions in GLD, GTU

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