The Gold ETF Illusion – Why You Don’t Actually Own Gold
Picture this a financial crisis occurs in overnight. The U.S. dollar is worth next to nothing. You are so thankful that you own gold because you think that you’re protected, but the gold that you believe you own is in a gold ETF and you are shocked to discover that in fact you don’t own any gold. And what’s worse, the perceived value that should be there in U.S. dollars has disappeared because there are no assets backing that ETF. And the worst part is there’s nothing you can do about it. You’ve been sold an illusion. What do you do now and how do you avoid this to begin with?
CHAPTERS:
0:00 An Illusion
2:05 Physical Gold
2:43 ETFs
4:13 Physical Gold Vs Gold ETF
6:06 Banks Push ETFs
7:42 Pros to Gold ETF
8:30 Buying a GOLD ETF
9:25 Who Benefits?
TRANSCRIPT FROM VIDEO:
Picture this, a financial crisis occurs and overnight the US dollar is worth next to nothing. You are so thankful that you own gold because you think that you’re protected, but the gold that you believe you own is in a gold ETF, and you are shocked to discover that in fact you don’t own any gold. And what’s worse, the perceived value that should be there in US dollars has disappeared because there are no assets backing that ETF. And the worst part is there’s nothing you can do about it. You’ve been sold an illusion. What do you do now and how do you avoid this to be begin with?
Hi everyone, my name is Taylor Kenny with ITM Trading, and last week one of you asked me to break down the illusion of a gold ETF versus physical gold. And I was so excited because this is a crafty one and it is just that a gold ETF is an illusion. And not only is it an illusion because you’re not actually owning any gold, but on top of that, you’re also opening yourself up to manipulation of value as well as high counterparty risk.
When I first started my journey with gold, I was motivated primarily by having wealth protection outside of the system. So I was always laser focused on physical gold. But the reality is, is that there are other options available that are gold backed or gold adjacent, and a lot of people don’t know all of the pros and cons that come with the different options that are out there.
I bet you could ask someone you know today, do you own any gold? And they’ll say, oh yeah, sure, I’ve got 10%, 15%, 20% of my portfolio is in gold. But what they mean by that is the illusion of owning gold. You might’ve fallen for this too, but don’t worry, I’m gonna go over all the details, including the risks so that you can make the most informed decision for yourself once you understand the pros and cons and the different types of gold options that are available. So starting out, we all know that gold has been used as a long-term store of value for thousands of years. It’s an obvious way to protect your wealth. And when I say gold here, I specifically am referring to physical, tangible gold. Depending on who you ask. However, there is one big problem with gold and that is that it’s outside of the system. And if it’s outside of the system, the only person who benefits from it is you. The only person who’s going to have their wealth protected is you.
This is a problem for banks. If you are the only one benefiting, how do they profit? This is where gold ETFs and mutual funds come into play. An ETF or an Exchange Traded Fund is essentially a basket of things like stocks or bonds. It lets you invest in a bunch of securities at once. There are a variety of different types of ETFs including stock, bond, sector and commodity. Gold and precious metals would fall under the commodity ETF category. Now, the way that this works is that someone, an ETF provider is going to create a basket of these commodities that then you are able to buy a portion or a share of similarly to buying a share of a company. Then that ETF is going to be traded on an exchange just like a stock. The key thing to know here, the really important part is that you do not actually own anything in that basket. While you may own a portion of the ETF, you don’t actually own anything that’s in the basket. These commodities are not convertible.
Now, there’s great irony here, which I’m sure is not lost on you, and that is that the reason why advisors will tell you to put money into a gold ETF is to diversify and diversify so that that money is backed by a proven physical commodity such as gold. But the ETF itself is still functioning like a stock and therefore is still part of the system and is subject to the same outside forces that anything else in your portfolio is. So the diversification isn’t real. One of the many reasons that people love real gold is that it’s pure, and I don’t mean pure in terms of karats, I mean pure, and that it’s immune to corruption and manipulation. And I cannot say the same thing for gold ETF. And this is where it starts to feel kind of like a scam.
A gold ETF’s value is going to be based on the market spot price of gold. This, this price is determined by supply and demand. So it seems like it would be pretty straightforward, right? Not quite. There are numerous ways that this gold price can be manipulated. The most common example of this is when bankers short sell or sell gold that doesn’t exist or that they don’t have yet to literally create more gold out of thin air, thus manipulating the spot price. There is more gold being bought and sold than actually exists. Every time a transaction happens, they’re making money off of it.
Now, in theory, a gold ETF is backed by a pile of gold somewhere. So there’s a pile of gold in a safe location, and that is what the value is based on. But that is not always the case. Let me say that again. A gold ETF’s value is not based on the actual gold that it’s supposedly backed by because there’s no rules or regulations saying that it has to be a hundred percent reserve. Because of this, you could be putting your money into something that is a fractional reserve, and with little regulatory oversight, you just have to have blind faith and trust As someone who buys into a gold ETF, you probably aren’t going to have much voting power or sway anyway, so you’re going to be on the sidelines watching, hoping that everything is as it says. So with all of this knowledge, why would you ever end up putting your money in a gold ETF in the first place?
Well, let’s say you go into your bank or you call up JP Morgan or whoever it might be, and you say, I’m really interested in gold. I wanna protect my wealth in gold. And they say, great. That sounds perfect. We actually also recommend that you should have 15% of your portfolio in gold. We’re in agreeance. We have these terrific gold options, gold futures, gold ETFs, what would you like? And you say, no, no, no, I don’t think you understand. I actually wanna put my money in physical gold. And do you know what their response is going to be? They’re going to try and talk you out of it. They’re going to pull up every single play in their playbook and figure out a way to make sure that you do not put your money in real tangible gold. Now, what would the reason be for someone who’s supposed to be a trusted advisor, someone who’s supposed to be looking out for their clients, to talk them out of putting their money in a proven worldwide commodity of value?
Well, you’ve gotta look at who’s benefiting from this. Banks. Were not benefiting from people putting their money into tangible gold, but you know what they do benefit from? People putting their money in gold ETFs, your broker, the bank, whoever it is, they are going to be making money off of you with fees. It is income for them and a diminishing asset for you. If you take your money and you put it into physical gold, you are protected and they lose money. They’re going to watch their payday walk right out the door. No more management fees, no more oversight, poof, it’s gone. So are there any pros to having a gold ETF? I mean, yes, I would say there are a few. I think one of the reasons why it’s so widespread is just because it’s easy and someone along the way talked you into getting it.
One of the main appeals is that you don’t have to worry about where you’re physically storing your gold. So an ETF a gold ETF exists just on paper on the internet. It’s not anything that you actually have to manage or oversee or store yourself, but that’s also its biggest weakness. And this applies not just to gold ETFs, but different other options too, like gold back cryptocurrencies. While this might sound great in theory, all of these options are dependent on someone else managing the asset.
Continuing with the ETF example, let’s break down what actually happens here. Essentially, you are buying debt that is backed by gold. You are buying debt, let’s say, from a broker, from someone else. Then there’s the trustee of the ETF. They actually own the gold. Then they have custodians and sub custodians and other people who are in charge of looking after the gold or safeguarding the gold. You have a bunch of people at the banks involved. That’s a lot of cooks in the kitchen. That is a lot of counterparty risk. Many different ways and people involved. And if any one of them default or fail…Knowing what I know now, that’s why I only have faith intangible gold. I do not wanna fall victim to the illusion or the promise of gold, not when I could have the real thing.
All of the information I’ve gone over is readily available. But the thing is, there’s a reason a lot of people don’t know about the risks involved. And it’s because again, you have to look at who benefits, who benefits from a gold ETF? The powers that be, the banks. They don’t want you to be in control of your own money. If you are, you win, they lose.
I’m not going to say that I know what’s best for you because I don’t. But what I do know is that if you’re interested in learning more and you wanna get out from underneath the manipulation, click the link below and get a strategy in place. Now. There has never been a better time to protect yourself. And if nothing else, at least make sure that you’re educated. The last thing I want is for anyone to be caught by surprise. And if you think you know someone who could benefit from this information, make sure to share this video. Education is free and the more we can all learn and grow together the better. As always, I hope I was able to share something new with you today. I’m Taylor Kenney with ITM Trading. Until next time.
SOURCES:
https://www.cbsnews.com/news/how-much-invest-in-gold-experts-say/
https://www.cnbc.com/select/what-are-etfs-should-you-invest/
https://www.schwab.com/etfs/understand-etfs
https://www.usmoneyreserve.com/news/gold/hidden-risks-buying-gold-etfs/
https://www.cbsnews.com/news/gold-etf-vs-gold-mutual-fund-which-is-right-for-you/
