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BearlyBegun

Etf Risk Factors

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I've been reading much on this site, and indeed this section about gold and other PM including silver.

1 thing that I've noticed a few times is peoples negative attitude to ETFs - can anyone explain their concerns more fully?

Obviously they are realtively new, which understandably creates a certain level of wariness in itself, but are there any specific concerns other than this? I also appreciate they are a paper based investment that could go seriously wrong if not backed by physical or if certain market conditions mean that redeeming this paper is impossible.

Surely though the same fear could be attributed to holding fiat currency in these troubling times? Is that why everyone prefers to buy physical or am I missing something?

I ask as I'm looking to pick up a PM ETF but want to know more about the potential downsides...

Thanks for your opinions

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Bearly Begun,

When it comes to paper gold my bete noire of choice is Bullion Vault. Not that I think they are bent, just unnecessary.

Dug this article on GLD & SLV out. Plenty to digest, and a long comment stream.

http://seekingalpha.com/article/149209-are...stment-vehicles

My advice, buy some sovereigns.

No third parties, no confusion, and it is nice when things just work.

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I hold some gold, silver and other commodity ETFs.

I am reviewing the holding of these. Not sure I want to own for the very long term.

2 major risks I see -

1) Third party default.

2) Government seizure of the ETFs as mostly US assets (i.e. America declaring gold illegal).

Much better to own physical gold or Perth mint share certificates in Australia.

I don't trust the UK, US or Swiss governments to protect individual ownership of gold in a major crisis that may be ahead of us.

Edited by ringledman

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It comes down to the reason you're buying gold. If you're buying as an investment, I can't see a big difference between owning paper gold and paper shares.

If you're buying because you're slightly worried about the state of the country, then only physical you actually own is any use for fairly obvious reasons..

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The price of the sugar ETF crashed when it's counterparty, AIG, seemed in trouble. Could happen to a PM ETF, irrespective of POG. If any of the counterparties to your ETF fail (you do know who they all are, right?) it is possible that your investment will be worth nothing.

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Thanks for all the replies.

Particularly concerning to hear that the sugar ETF crashed with AIG, or the threat of potential siezure in meltdown circumstances e.g by US government.

With regards to investment or protection - with PM for me it has to be a bit of both.

I've been looking at silver and if I decide that a thrust upwards is upon us then I have some decisions to make. The premium on silver/VAT is rather off putting for buying which is why I took a look at ETF, but I appreciate there are risks associated in the face of a more serious collapse in the UK/world.

I do like the idea of having it (gold or silver) in my hand though...harder for any government to rip from my grasp!

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Thanks for all the replies.

Particularly concerning to hear that the sugar ETF crashed with AIG, or the threat of potential siezure in meltdown circumstances e.g by US government.

With regards to investment or protection - with PM for me it has to be a bit of both.

I've been looking at silver and if I decide that a thrust upwards is upon us then I have some decisions to make. The premium on silver/VAT is rather off putting for buying which is why I took a look at ETF, but I appreciate there are risks associated in the face of a more serious collapse in the UK/world.

I do like the idea of having it (gold or silver) in my hand though...harder for any government to rip from my grasp!

Fine unless you get robbed :ph34r:

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Particularly concerning to hear that the sugar ETF crashed with AIG, or the threat of potential siezure in meltdown circumstances e.g by US government.

I owned some sugar ETF until I sold it recently. On the day AIG looked like it could go down, they were worth nothing - there were virtually no bids at all. Until then, I didn't even know that AIG was a counterparty. Of course, in retrospect I should have realised that AIG was too systemically important to fail and piled in with everything I had - I would have made huge returns. IMO, the risk with a PM ETF is that a counterparty is small enough to let go. The risks are perhaps higher with a PM ETF if the rumours about manipulation, massive naked shorts, etc are true.

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The main concern of most members of the forum is the (dons tinfoil hat) "well-founded" fear that the ETFs or other forms of paper silver and gold may well have been sold many times over compared to the actual physical metal available in their systems. Although I personally feel ETFs have a place for those investors who wish to pile in with large sums on small dips in the market, or carry out silver/gold swaps to take advantage of changes in the gold/silver ratio without troubling HMRC concerning VAT on silver or the need to accept the large buy/sell spreads involved if selling physical to a bullion dealer, the bottom line for most of us seems to be the risk of systemic failure.

Either systemic failure of the banking system, of fiat currencies (especially the dollar), or the risk that one day, a lot of investors (or a few big ones) may walk up to the counter unannounced and ask for the gold to be delivered.

Physical metal in your hand avoids all this, the only downside being the security of the bullion or storage costs, depending on the volume of metal required.

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