|
While most investors seem satisfied
using the shares of mining companies as high-beta substitutes for the metal,
more and more individuals are becoming interested in owning some physical
gold itself. Unfortunately, most
investors don’t know how best to buy and store the precious metal.
It used to be that
investors would simply visit the corner coin shop to buy gold bullion, but
finding a precious metals dealer who would stand by his quoted price in a
volatile market wasn’t always a sure thing. More importantly, there is a challenge
faced by anyone wanting to buy more than a few one-ounce coins: storage. Unless one is comfortable burying gold
in the backyard, there is always a cost in securely storing bullion.
Thankfully, products that
combine the purchase and storage of physical gold have been improving
dramatically, with one new entrant, bullionvault.com, providing a
particularly attractive alternative.
Here’s how such offerings have evolved:
Exchange-Traded
Gold Choices
Many investors seem to
think that the ability to purchase physical metal through an exchange-traded
vehicle arrived only in late 2004 via GLD, the World Gold Council’s ETF
that holds gold bullion through intermediaries. Gold bugs know, however, that for
nearly 20 years U.S. investors have had access to Canada’s Central Fund
(AMEX symbol: CEF).
While the Central Fund is
similar to the upstart GLD in that it also holds gold bullion (and silver) in
some form of allocated storage, unlike GLD it behaves like a traditional
closed-end fund, sometimes trading at a big premium or discount to its own
net asset value depending on whether gold is in or out of favor. When trading at a significant
discount, this is an interesting stock to consider; today’s premium of
almost 10%, however, suggests gold can be had much more inexpensively
elsewhere, certainly in GLD if looking only for an exchange-traded vehicle.
Where both of the above
exchange-traded vehicles fall short, though, is in the area of
convertibility. Part of the
reason for buying a physical gold product is the potential to take delivery
in the future. CEF offers no such
convertibility and GLD only allows it for purchases of 100,000 shares—
nearly a $5.5MM investment at today’s prices.
Perhaps convenient for
trading, the ETF products don’t measure up as solutions for those who
might wish to one day take hold of their shiny treasure.
Internet
Offerings
A few web-based solutions
combine the purchase and storage of bullion in a manner similar to the above
ETF’s, yet one has emerged to clearly stand out as the best overall
online product: BullionVault.
And don’t just take
my word for it. In a recent email
to readers, one writer at the acclaimed Agora Publishing called it,
“…the most exciting development in the gold market I've ever
witnessed.” That same
writer went on to say, “Bullion Vault enables you to trade the purest
gold at the tiniest spreads - with no delivery charges, minimal insurance fees,
and storage costs to make your local bank blush.” High praise, indeed.
Like its competitors, a
simple online application also opens your account. Here, however, fees are wafer
thin— the maximum sales charge is only .8%— eight-tenths of one
percent — with significant discounts beginning at only $30,000 invested. To highlight the contrast: the lowest fees of BV’s closest
competitor are greater than the highest
rate charged by Bullion Vault!
Further, there is no minimum dollar amount to open an account and gold
can be fabricated and delivered for a fee to investors of all sizes.
How can Bullion Vault
afford to charge so little? It
has to do with its mission: to become a deep, round-the-clock market for
physical gold trading. With such
low fees, it explicitly intends to serve as a market for active traders of
bullion, to the great cost benefit of the long-term investor. Bids and offers, which are visible at
all times on the company’s website, are placed there by Bullion Vault
clients (and quoted prices are “firm”). The result has been increasingly tight
spreads (often less than $1, which is unreal), lowering the cost of
acquisition.
Indeed, when I first looked
at Bullion Vault a year ago I was immediately put off by trading spreads you
could drive a truck through. When
I re-discovered the product late last year, I was amazed to see the dramatic
tightening of those spreads, a direct result of increased liquidity that has
materialized from its dramatic growth.
Haven’t heard much about it yet? You will.
Even those who only want trading
exposure to gold without any desire to take possession should look beyond the
exchange-traded GLD and its pricey .40% annual expense ratio. Bullion’s Vault’s annual
fee for storage and insurance, by comparison, is only .12%, less than
one-third that of GLD.
Despite the fact that
physical gold products have become increasingly attractive in recent years,
traders, investors and competitors alike will find BullionVault.com a very
tough act to follow.
Chip Hanlon
President Delta Global
Advisors, Inc.
19051 Goldenwest, #106-116 Huntington Beach, CA 92648 Phone: 800-485-1220
Fax: 800-485-1225 www.deltaga.com
In looking for other ways to
diversify some assets away from the U.S. Dollar, investors continue to show a
high degree of interest in Canadian Royalty Trusts. We at Delta Global have exclusively
commissioned an investor’s guide by perhaps the leading expert on the
sector, Roger Conrad, available for FREE here: http://www.deltaga.com/reportForm.asp?rep=2
______________________________________________________________________________
| 
