Paper Precious Metals vs. Physical

 

Paper silver & gold are digital products, securities, or derivatives that actually have little direct connection to physical silver & gold. It continues to be discussed that the ultimate purpose of paper precious metals is little more than for a few large corporations to control the market pricing mechanisms. The paper market is full of risks for individual investors, as you are not truly owning physical silver or gold. Many people do not understand this difference between paper and physical metals; this article will look at investing in paper markets vs. owning physical metals.

 

What are paper precious metals?

Paper precious metals are comprised of securities and/or derivatives of fractionally backed physical metals. It does not provide direct ownership of physical precious metals. Most investors buy paper metals as ETFs (Exchange Traded Funds). These funds trade similar to common stocks; the two most common ETFs for paper are GLD and SLV.

 

GLD

GLD is the ETF symbol for SPDR Gold Shares. GLD was originally listed on the New York Stock Exchange in November 2004 and now also trades on The Singapore Stock Exchange, The Tokyo Stock Exchange, The Stock Exchange of Hong Kong, and The Mexican Stock Exchange. GLD was created as an option to invest in gold without taking physical delivery of the gold. GLD is fractionally backed by 400-ounce gold bars held in London vaults. The share price closely follows the spot and futures pricing of gold, along with some fees.

 

SLV

SLV is the ETF symbol for iShares Silver Trust. This fund was created to offer investors a convenient option to invest in silver without the need for physical delivery. SLV began trading on the New York Stock exchange in April of 2006. SLV moves closely with spot and futures prices of silver and is fractionally backed by physical silver held in the fund’s vault.

 

Should you buy paper precious metals or physical precious metals?

The paper markets are much larger than the actual physical markets. The ratio of paper gold to physical gold is over 100 to 1, while the ratio of paper silver to physical silver is over 400 to 1. This means that for every 1 ounce of physical gold supply, there are over 100  ounces of paper gold supply, and for every 1 ounce of physical silver supply, there are over 400 ounces of paper silver supply. Since the supply ratios are so lopsided, a paper investor is buying gold and silver which may not actually exist. The paper market is not fully collateralized by the physical metal and is therefore at risk of manipulation and volatility. There is not enough supply of physical gold and silver to back up all the ETFs. With physical metals, you can hold the asset in your hand. It is tangible and verifiable, unlike paper metals, which could have no actual intrinsic value.

Another risk of ETFs is that the investments are controlled by third parties which involve a lot of trust and risk. The investors have virtually no direct access to the physical metals the fund holds in its vaults. An investment in paper relies on the fund’s structure, leverage, and honesty. As the fund use banks as custodians, the investment further relies not only on the fund’s actions but also on the bank’s actions. If the bank were involved in any fraudulent activities, the investment in the paper metal would be at risk. You do not actually own the gold or silver that is being held in the ETF’s vaults; you only own the share of a fund, whose price is only determined by a potentially manipulated market, not the actual price of the physical precious metal. 

Compared to paper metals, physical metals’ most important advantages are that they are tangible and have actual intrinsic value. An investor can realize the value of the asset in their personal possession. Although there are some added challenges of delivery and storage, the investor fully controls the asset and can decide what they want to ultimately do with it. Physical metals have no counterparty risk like paper metals and have the full upside potential in price. 

For a prospective investor, an ETF could be a possible investment because of its ease of entry and exit, straightforward monitorability, small minimum purchase requirement, and low storage fees. However, for an investor looking to possess physical ownership with zero counterparty risk and the ability to exchange the asset all over the world at current physical market prices, buying physical precious metals is the better decision. 

Paper metals and physical metals are vastly different products. If you are looking to buy actual physical bullion at the current low price, GoldClub Direct offers renowned products with very low premiums. Explore our website or call us at 1-800-700-4715.

 

All Updates and Market info are provided as a third party analysis and do not necessarily reflect the explicit views of GoldClubDirect LLC.. and should not be construed as financial advice.

Government vs Private Mints

Precious metals have been mined for thousands of years all over the world. After being extracted from the earth, these metals must be refined and processed to separate any and all impurities. Once the precious metals have been processed, they can be taken to refineries and mints worldwide to produce bars, coins, or other variations of precious metal products. There are two main types of mints that investors should know about, government mints and private mints.

 

Government Mints

Government, or sovereign, mints are controlled by the national government in which they operate. The main product these mints produce is coinage. Coins produced at sovereign mints are considered legal tender or otherwise commemorative. Each coin has a face value, enabling its use as currency. For precious metals, the intrinsic precious metal value of the coin usually is more than the face value, so they are rarely used as actual currency. Coins minted at government mints come with guaranteed metal purity and specialized security measures to provide authenticity as needed.

The United States Mint is one of the largest mints in the world. They have production facilities in Philadelphia, San Francisco, Denver, and West Point, with a bullion depository in Fort Knox and headquarters in Washington D.C. Products from the US Mint include mintmarks depicting where the coin was minted. A “P” is from Philadelphia, a ”S” is from San Francisco, a “D” is from Denver, and a “W” is from West Point. One of the US Mint’s most popular programs is the American Eagle, which includes gold, silver, platinum, and palladium coins. Other examples of sovereign mints include the Royal Canadian Mint, Perth Mint, Austrian Mint, Chinese Mint, and Royal Mint. Sovereign mints produce some of the most popular products, like the Canadian Maple Leaf, Austrian Philharmonic, Chinese Panda, UK Britannia, and South African Krugerrand. Sovereign coins usually carry a higher premium over spot price due to their collectibility. 

 

Private Mints

Private mints are owned by companies that produce non-governmental bullion products. The main two categories of products private mints create are bars and rounds. If you would like to learn more about the difference between coins and rounds, read our blog discussing this matter. Since there is no government directing their production, they are able to create products with their own branding and design. There are more variations with private mint products, as they can also be any weight, shape, purity, and metal content. There is still some regulation, as private mints must abide by the standards set by the London Bullion Market Association (LMBA) to be authorized for trading.

There are many prestigious private mints around the world. GoldClub Direct offers products from Credit Suisse, Valcambi, SilverTowne Mint, and others. These mints are well-renowned worldwide and offer great quality bullion at low prices. Private mint products tend to have a lower premium as their standards are not as strict as sovereign coinage. 

 

Should I buy from a government mint or a private mint?

Buying from a sovereign mint vs. a private mint is up to individual preference. Products from a sovereign mint will be a good addition to a portfolio for an investor that is looking for legal precious metal coinage backed by a national government. Products from private mints are well suited for investors who are looking to invest in precious metals with the lowest possible premium. GoldClub Direct stocks products from only the most respected government and private mints.

 

All Updates and Market info are provided as a third party analysis and do not necessarily reflect the explicit views of GoldClubDirect LLC.. and should not be construed as financial advice.