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GLD etf small investor and panic scenarios or national emergencies?

January 13, 2011 by  
Filed under Silver Investment FAQ

How will this perform in situations like investor panic or a national disaster? Wouldn’t investors be kept from their money? How will the bureaucracy to protect investors contend with a national emergency and widespread panic?

Wouldn’t possession of the actual gold (or even silver) avoid all this? And i’m not talking billion dollar investors here, average or small investors making their first investments in the precious metals sector.


2 Responses to “GLD etf small investor and panic scenarios or national emergencies?”
  1. Dinesh says:

    The truth is that we really don’t know how will GLD fare in the event of a such a disaster. Is it another Madoff? AIG? Will it have access to its loads of gold? SPDRs are pretty respectable, but there is no 100% ironclad guarantee any more. Plus, there is the risk of operational failures, electronic theft, etc.

    In case of trouble, how long will it be before you get your money, and will that money be worth the same when you get it?

    For a small investor, holding gold physical may not be that much trouble. There is no annual fee. And you have the thing, and its all yours. You can also mitigate the risk of theft and loss somewhat by taking out a bank locker. You should definitely consider transaction costs at your purchase levels, ease of making incremental investments, and the need for liquidity.

    Because we are talking about disaster scenarios, it’s in the end a very personal decision. Neither form may prove to be the absolutely correct answer.

  2. MVD34 says:

    If the panic is of a magnitude that you cannot cash your holdings in GLD, having bars of gold in your basement isn’t going to help you either.

    The bottom line is that a good bit of the “pitch” for gold is bs — that is, what people hear and what is actually true are very different things. The gold sellers know this and they use it to sell their overpriced merchandise to the ignorant.

    Point 1: Gold is a protector of value during periods of volatility. It is not a protector of value, generally or generically. During periods of low volatility the price of gold falls. It is expensive to store & keep safe and it produces no income to offset costs or inflation. When things change, the price of gold will surge. When things cool down again, the price will drop back. As a result, one must really build up a position in gold before a surge (pre2005, lets say, very low prices) and reduce the position into the surge (2008-9) in order to actually extract the pricing power (diversification value) out of a gold hedge. Just holding a gold position for a long period of time will be a loosing investment.

    Point 2. In a catastrophe or economic meltdown, people do not run for gold. They go for hard goods — food, electronics, cars, furniture…things that store value in an absolute, not relative, basis and can be bartered but are very difficult to steal (gold is very easy to steal). It you think I am lying, go research the currency panics in Russia. Even today, Russians do not trust their currency — but they put their savings in “stuff.” It is safe and efficient.

    Point 3, Physical gold as marketed in the western world usually includes a huge markup — either in coins for coin collecting beauty, rarity, & historical value or as salesman commission (the “radio people”). In a period of currency disaster, these things have no value — which means your gold holdings will “devalue” just like the currency.

    If you buy physical gold, be very, very careful that you know exactly what you are buying and why.

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