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Goldmoney Vs Gold Bullion Securities

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Hi

I've read with interest over the past couple of months all the discussions regarding gold. Posters have recommended various methods of gaining exposure to gold (I have Merrill Lynch Gold Fund + coins), but I'd be interested in people opinions of buying gold using GoldMoney vs Gold Bullion Securities shares (GBS).

Here are my thoughts:

GoldMoney

I opened an account and deposited a trial £100 (big spender me!). I found the method of paying into GoldMoney a bit fiddly. You can't deposit money using a debit card, but have to set up a transfer into their account using either CHAPS or BACS. CHAPS costs money for the transfer, so I used BACS, so it took 3 days for the money to arrive.

The cost of gold on the site is about 3% above the spot rate for the quantities I'd be purchasing, so it's a bit pricey. At the time of writing, they're charging $472.70/oz as opposed to $459/oz spot. There is a maintenance charge of around £1 / month regardless of how big your holding is.

I think until they introduce a better payment system I won't be using this site. I'd like to deposit money instantly via a debit card. They are introducing direct debit functionality within the next couple of months however, so hopefully they'll allow debit cards at some future date.

Gold Bullion Securities

GBS are basically shares you can buy - each share is 1/10 oz of gold. The shares are quoted in dollars. This operation seems to be quite big with gold assets of around $4 billion.

I used my Squaregain dealing account and deposited £2.5k via a debit card and bought 98 GBS shares. There doesn't appear to be much of a spread on these shares, so you pay more or less spot price for the gold. There is a 0.4% annual maintenance charge, which is pretty low, especially compared to Goldmoney who charge 3% more for their gold.

I prefer these to Goldmoney due to the lower charges and being owned by the World Gold Council, I feel more confident in the company running the operation. Saying that, I'm sure Goldmoney is a reputable company, but it's quite small and I don't really know a massive amount about it, hence my slight hestitation to trust large sums of my money with them.

Anyone any comments / experience of the two systems?

Regards,

crude.

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Thanks for this crude. Wish I'd known about this earlier.

I put 1k into GoldMoney about a month ago. I think they're completely kosher.

Its the spread on GoldMoney thats 3% not the annual charge, and thats where Gold Bullion Secutiries (GBS) seems favorable.

On the other hand the annual charge on on GoldMoney is a fixed amount of gold, currently about £1 per month. So if your investing very large amounts for very long periods, GoldMoney might be better.

As I want to continue saving in gold, I might use the GBS method next time. At least my gold has risen enough now to outweigh all the costs. (Hope it stays there though!).

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Beware!

GoldMoney is allocated physical gold in your name.

GBS is a security that tracks the price of gold using, among others, futures, options, derivatives.

Remember, gold goes to the moon in case of a financial meltdown. In these conditions GBS might go to the wall.

If you want to speculate on short term gold price movements, by all means use GBS.

But if you want to protect yourself, avoid it! Buy gold and either hold it privately or in an allocated account like goldmoney.

Got gold?

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Im using goldmoney, i find the payment system pretty simple.

I've only just set it up in the past few months, i figure i can buy 1 oz a month- cost averaging, hardly the last of the big spenders but it works out to be about 25% of my monthly investments, obviously when the price rockets i will have to rebalance my investment plan.

I found gold money pretty simple to use... i say how much i want to buy at the given price i then get a message through saying

Thank you for your order.

Order Number: XXXXXXXX

Purchase Amount: £260

GoldGram Amount: 31.193gg

Ounce Equivalent: 1.002oz

You have purchased 31.193 goldgrams.

You must instruct your bank immediately, so that we receive your wire transfer within 48 hours (i.e., two business days). If we do not receive your wire transfer within the required time, the rate at which you 'locked' your order will be cancelled, and your purchase will be completed at the goldgram rate prevailing at the first London PM Fix after we receive your funds.

When i get that (instantly) i just use online banking to pay them the £260(in this case). I've got the details saved in my online banking so it literally takes me seconds to pay.

Like i said ive only started this off in the past few months so there could be nasty bits further down the line. So far so good. The spread sucks abit but it is allocated.

EDITED:

Reading back through that i realise i sound like a badly constructed Goldmoney advert. :lol::ph34r:

Edited by theChuz

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Hi cgnao

Hmm, that's worrying if you're right (not that I'm saying your wrong).

I'd got the impression from the GBS website, that each share was backed up by 1/10oz gold, held in vaults around the world. The GBS factsheet says that all gold is held in allocated form and carries no 3rd party credit risk (GBS Factsheet);

I'm not going to put all my gold eggs in one basket regardless. I'm splitting my gold investments by putting 50% into Merrill Lynch Gold fund, 25% into an allocated gold account (which I thought GBS was, so I may switch this to goldmoney) and 25% in Kruggers/sovereigns (I need a safe for these before I get any more!)

Regards,

crude

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James Turk's articles on a similar security launched last year and trading in New York. You might find them useful

http://www.kitco.com/ind/Turk/nov222004.html

http://www.kitco.com/ind/Turk/dec062004.html

Remember - one the many qualities of gold is that it is not anyone else's liability.

With an allocated account, you are the gold owner, not the custodian. They can't lend it out. They must profit somehow, hence the charges.

With GBS or any other unallocated account, you become a gold creditor. The custodian is liable for it (not unlike a bank is liable for your cash deposit) but otherwise they own it and can do whatever they please with it, including lending it for their own profit.

In a financial crisis, the custodian of an unallocated scheme may collapse leaving you out of pocket.

On the other hand, even if the custodian of an allocated scheme disappears, the gold in the vault still belongs to you.

Your method of buying monthly is exactly what I have been doing for the last three years. In addition to that, I also usually buy more when the price dips.

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From GBS's redemption form (http://www.goldbullion.com/pdf/gbs_red_form.pdf)

REDEMPTION METHOD - please select one only of the following:

GOLD BULLION: This alternative is only available to

Holders which have an unallocated account with a bullion

dealer in London who is a member of the LBMA to which

such gold is to be transferred.

CURRENCY: Indicate the currency (one only) in which you would

like to receive your Sale Proceeds:

US$ Electronic Funds Transfer

£ Sterling Electronic Funds Transfer

Euros Electronic Funds Transfer

Look at goldmoney's redemption clause: http://www.goldmoney.com/en/agreement.html

VIII. E) A User may, by providing GoldMoney with delivery instructions, which instructions must be in the form prescribed from time to time by the Vault, at any time request GoldMoney to change the GoldGrams in his Holding into grams of gold that are available for physical delivery to the User, provided that there are sufficient GoldGrams to take delivery of a London Good Delivery bar of gold, which bar weighs approximately 12,500 grams. GoldMoney will not charge a fee for its service, but fees may be charged by the Vault for acting on the delivery instructions.

Note how GBS only redeem gold by transferring into unallocated accounts, then decide whether you are willing to run the risk.

Edited by cgnao

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cgnao, out of interest what percentage of your investment money do you put into gold. Im at 25% but im thinking of increasing that to atleast 50%.

I am playing with relativly small amounts though so 50% of my monthly scrimp and save would buy c. 2 oz. I'm still trying to load up an ISA at the moment and get the next 3k sorted for april which to me is the *sensible* thing to do but sensible does not always mean best.

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Thanks for the replies.

Even something as "simple" as gold gives you an awful lot to think about! I really don't subscribe to the doomsday scenarios that many on this site do, but I always like to be prepared...

Many thanks.

crude

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Thanks for the replies.

Even something as "simple" as gold gives you an awful lot to think about! I really don't subscribe to the doomsday scenarios that many on this site do, but I always like to be prepared...

Many thanks.

crude

Was a good initial post, we've all danced around it but never really came to any conclusions

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cgnao, out of interest what percentage of your investment money do you put into gold. Im at 25% but im thinking of increasing that to atleast 50%.

I am playing with relativly small amounts though so 50% of my monthly scrimp and save would buy c. 2 oz. I'm still trying to load up an ISA at the moment and get the next 3k sorted for april which to me is the *sensible* thing to do but sensible does not always mean best.

I believe there is too much debt worldwide. Both individuals and companies are suffocated by repayments and we're close to breaking point as the debt can no longer be paid off. There are two possible scenarios:

1) Central banks don't raise rates, or even worse they lower them in an attempt to revive the economy. This will lead to runaway inflation and utter collapse of the global monetary system. In this case gold/silver will be the only refuge.

2) Central banks start fighting inflation by massive interest rates increases and reduction of the money supply. Banks will start suffering bad debts, some will fail. The credit crunch will collapse the economy and the world will enter a great depression. In this case, cash will be king because everything will go down in price. Gold will simply hold its value and might go down in price, albeit less than any other asset. It will still be desirable to hold some, as an insurance against bank defaults.

I would suggest holding between 10 and 25% until the outcome is clear. Such an amount is enough to offset the depreciation of the rest of your capital in case of hyperinflation, plus you would still be able to buy some more (albeit at higher prices) when things become clearer.

On the other hand if a depression comes the place to be is cash and holding too much gold would be safe but hit your bottom line. In this scenario you would probably just want to hold your position.

Me? At the moment

gold 17%

mining shares 3%

cash 80%

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An interesting article. http://www.goldensextant.com/commentary29.html

The ECB declined to give any reasons for its gold sales, which were the first by that bank from its own reserves rather than by its member banks from their national reserves. What is more, the ECB's sales were not contemplated under the Joint Statement on Gold issued by the ECB and 14 other European central banks (but not the Bank of England) last year to replace the WAG.

With the central banks apparently under increasing strain to meet strong physical demand, the bullion banks have found a new vehicle through which to execute some of their own hedging strategies: the World Gold Council's ETF (streetTRACKS Gold Shares), symbol GLD on the New York Stock Exchange. As Don Lindley observes in the upper right hand corner of his chart, open interest in COMEX gold options has declined sharply since GLD started trading late last year.

At about the same time, an unnamed bullion bank (almost certainly HSBC USA) requested an opinion from the OCC with respect to whether a national bank could trade in GLD for its own account and for the purpose of hedging its exposures in the gold market. See OCC, Interpretive Letter 1013 (January 7, 2005). Subject to satisfying its examiner-in-charge that "appropriate risk management systems [are] in place, the OCC ruled (at p. 7):

The Bank may buy and sell the Gold Shares for its own account under the express authority granted to national banks to buy and sell "exchange, coin, and bullion," and the Gold Shares, as interests in gold, may be used to hedge purchases and sales of gold as part of incidental to the business of banking... .

The failure of GLD's reported holdings of gold (total net asset value in tonnes) to respond to large variations in daily share volume may simply reflect the accumulation of previously issued "baskets" by certain bullion banks whenever investor sales make them available, leaving these banks with new ammunition for future short sales.

So to recap the World Gold Council is collaborating with a bank heavily short gold (HSBC USA).

Guess who is the custodian of GBS's gold? It's HSBC USA (http://www.goldbullion.com/uk/holdings/gb_holdings_uk.php).

All that glitters is not gold.

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