Grant Williams On The Fundamental Difference Between Buying A Gold ETF And Owning Physical Gold

gold bullion

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Why go through the trouble of buying actual physical gold, when you can just buy the GLD ETF and profit off the incredible surge?Well, some folks think gold ETFs are somehow a fraud, and other people think that civilisation is actually coming to an end, and that people will be forced to pay for things in gold shavings.

Most people won’t be convinced by either.

Grant Williams (former BTIG), in his Things That Make You Go Hmm… newsletter puts it in a different way.

I had been reading about gold as an investment but more importantly as a hedge against money-printing for some time and had dabbled in ETFs while i told myself that I would DEFINITELY buy some gold – real gold. Physical gold. Shiny, yellow, heavy gold.

But of course, I didn’t.

It was all too hard, frankly. Why go to all the trouble of researching, finding a bullion dealer, choos- ing between bars and coins and then plunking down your cash in return for a lump of gold when you could sit at home in front of your computer, click your mouse a few times and be the proud owner of some unallocated claim on a pool of gold that may or may not be there but that gives you exposure to any move in the gold price?

You can buy exposure to gold during the commercial break of Grey’s Anatomy. Easy.

The trouble with doing that, is that you then end up with a position. It becomes a number that you trade into and out of based on extraneous factors that may or may not have an effect on the underly- ing price. There aren’t many people who have taken a position in GLD (or SLV for that matter) who haven’t either been chased out of their position in a big down-move, or failed to pull the trigger on a buy-order because they felt the price had run too far.

All over the world there are people who thought gold had run too far, too fast at $800, $900, $1000 – in fact, pick a price between $500 and where we stand today, a little shy of $1,500, and you will find somebody who tried to put in a low bid in the ETFs waiting for a pullback that never came and subsequently missed out on the ride of a lifetime.

The thing about the whole ‘buying physical’ idea is that, just as it’s a pain in the neck to go buy your first coin or bar, it’s also as much of a pain to go and sell it again too – nobody hangs around a bullion dealer watching the price change in the hope of catching the top of the day – for one thing, that’s a sure-fire way to miss Grey’s Anatomy, but for another, it’s a pointless and time-consuming exercise.

The second you actually hand over cash in exchange for a piece of gold, it all falls into place. Gold FEELS like money – more so than even the highest-denominated fiat banknote you will ever hold. Trust me. If you haven’t done it yet, try it.

Williams’ discussion of physical gold keys of the recent news that at the behest of Kyle Bass, UT has acquired $1 billion in actual physical gold, held somewhere in New York.

Anyway, there’s something interesting here perhaps about making gold buying a commitment, not just a trade, but it’s very much bull-market logic. Were things to turn around — and we know that’s heresy for the hardcore golders — the appeal of having a difficult to sell asset would disappear very quickly.