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Why Investing in a Gold ETF is Totally Different Than Investing in Gold

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UNC professor Karl Smith makes an interesting case against gold ETFs on his blog, Modeled Behavior.

He writes that, "...while in some sense gold does make sense as the hedge of hedges – though I think canned beans are probably better – GLD ETF is just another financial asset that will crash when the system crashes, leaving you high and dry."

Smith goes on to point out that an ETF is "a fund and one that is likely to go down in flames along with the rest of the economy."

He also asks, "...when the apocalypse comes do you think it is more likely that they carefully distribute the gold to all of their shareholders or that the fund mangers will steal as much as they possibly can while heading for the hills. I am going to go with the latter scenario."

Megan McArdle of The Atlantic adds:

"I'm going to dispute the notion that gold is a good hedge against the apocalypse. In the event that the US economy melts down so far that buying gold was a good alternative to holding US dollars, then buying canned goods, ammunition, and medical supplies was an even better alternative to gold. The only scenario I can think of in which it makes sense to stockpile a lot of gold is one where you and your household goods are unexpectedly teleported into the sixteenth century. If you worry a lot about this, then by all means, stockpile gold. But you should also probably take the precaution of stockpiling antibiotics and how-to books on dentistry."


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POSITION:  No positions in stocks mentioned.