In part one of this article, we looked at what gold bullion is by today’s standards, as well as some of the reasons gold coins and gold bullion can truly be seen as wealth. As I also said in the first article, these myths or misconceptions came from those that called me during my time as a Senior Analyst at ITM Trading. Here are some of the more interesting myths surrounding gold bullion and gold coins, as well as rare gold coins, and the truth that will dispel these myths.

Why Invest In Gold? If I Have A Gold ETF, It’s The Same As If I Buy Gold Bars
Gold ETF’s (Exchange Traded Funds) are not the same as if you buy gold bars, in truth, when you “buy gold bars” through an ETF, you are buying them for someone else! Let me explain. GLD for example, which is one of the largest gold ETF’s holds plenty of gold coins and gold bullion products, but the people who opened the accounts and deposited the money that paid for the gold coins and gold bullion will never receive the gold. If you read the terms of investing in GLD, they clearly state that you will always be paid out in cash, never gold coins or gold bullion. In fact it works like this; GLD and other gold ETF’s mock the price and market moves of gold bullion for investors, while they stockpile gold bullion and gold coins in vaults for the owners of the ETF’s!

Example:
Lets say for the sake of easy numbers that gold is $1000 an ounce, and rather than buy gold bars that are real and will be shipped to your house for $1040 each, you decide “why invest in gold” and buy gold bars through ITM Trading, when I can buy gold shares through an ETF Like GLD for $1000 for what would be enough shares to equal an ounce of gold. You send GLD a check for $1000 and open your account. What they will do, in essence, is go into a vault full of big gold bullion bars, and put your name and account number on a little yellow sticky note, and attach that sticky note to a large gold bullion bar that is already full of other little sticky notes. In essence, you now own a claim to the value of that bar commensurate to the amount you initially deposited into the fund. Remember, if you want to close your account, they will not send a piece of that gold bullion bar to you, (they legally own the bar – you own unsecured shares) they will send you a check. Now here comes the interesting part – ETF’s are not free, they charge fees, and generally they take those fees out of your holdings! Theoretically it would be like every time your fees are due, they tear a little piece off of your yellow sticky note to pay themselves, meaning that over time the amount of shares you have of that gold bullion bar decrease. Eventually, if the price of gold were to stay flat or decrease, you would have nothing at all because your fees ate up your claim against the value of the gold bullion bar or gold coin your sticky note was attached to!

If you had decided to buy gold bars from ITM Trading, on the other hand, they would still be tucked away in your safe, safe ,sound and good as gold, pun intended. For more information about “Why invest in gold?” with ITM Trading, as opposed to other gold investments, please call us at 1.888.OWN.GOLD.