Question for Gold Bugs

[SoldierMan]

This is a question for those who invest in physical gold.

Given the economic (and political) path South Africa seems to be on do you think it is time to start investing in foreign gold coins like the US Gold Eagle, Canadian Maple Leaf or to keep costs down just a non-country based 1 oz coin/medallion/bars struck in .999 gold.

I ask this because you need permission to take Krugerrands out of SA, with medallions/foreign coins you can do with them as you please.

If you need to hop on a plane quickly or cross a border, a couple of coins could prove useful. The path SA is on is worrying, but the world economy is just as fragile at the moment as well, so a shtf scenario is not out of the question either.

 

[bobcpt]

The problem with physical gold is the risk of storing it yourself. One or two coins may be practical, but one cannot store a substantial portion of your portfolio in your safe at home. When travelling overseas, do they treat gold as a cash equivalent when counting it towards the overall cash limits you are allowed to travel with?

I do understand and share your concern about things looking very fragile and the risks associated with paper currency. Perhaps you should look at diversifying your options, i.e. have a small portion in physical coins, have some money invested in gold backed ETFs or other offshore investments (stocks etc) that you can access from a new country should the need arise.

Part of my strategy is to buy some gold using exchange traded funds that store such gold in different locations around world, e.g. SPDR GLD (London I think) or AAAU (Perth). Both of these funds are available through stock brokers in the USA. Locally one can buy Newgold via the JSE, but you need to convert it into ZAR before you can transfer the money offshore. The risk would be the stock market shutting down for a period of time.

In the unlikely event of governments trying to confiscate gold from these funds, I suspect that they would try to do the same with all forms of gold, including coins.

 

[JayM]

Interesting thread - I'm also looking at physical gold. Gold Britannia coins look like a good option - they are recognised as currency in the UK, and are therefore VAT and CGT free there. Insured storage is pricey @ 0.78% p/a, which is much higher than the expense ratios on most gold ETFs. The spread is also quite high.

Gold ETFs have superior liquidity and smaller spreads than physical gold, so you can buy/sell very quickly and easily if you need to, but there are multiple levels of counterparty risk which you're exposed to. Investopedia has listed the popular paper options here:

Top 6 Low Cost Gold ETFs

Investopedia provides a list of top gold ETFs and similar products that charge the minimum fee

www.investopedia.com

I think storing physical gold inside SA in a vault, or in your house, defeats the purpose of the asset. You make yourself a prime target for thieves (which arguably includes government).

 

[SoldierMan]

The problem with physical gold is the risk of storing it yourself. One or two coins may be practical, but one cannot store a substantial portion of your portfolio in your safe at home. When travelling overseas, do they treat gold as a cash equivalent when counting it towards the overall cash limits you are allowed to travel with?

I do understand and share your concern about things looking very fragile and the risks associated with paper currency. Perhaps you should look at diversifying your options, i.e. have a small portion in physical coins, have some money invested in gold backed ETFs or other offshore investments (stocks etc) that you can access from a new country should the need arise.

Part of my strategy is to buy some gold using exchange traded funds that store such gold in different locations around world, e.g. SPDR GLD (London I think) or AAAU (Perth). Both of these funds are available through stock brokers in the USA. Locally one can buy Newgold via the JSE, but you need to convert it into ZAR before you can transfer the money offshore. The risk would be the stock market shutting down for a period of time.

In the unlikely event of governments trying to confiscate gold from these funds, I suspect that they would try to do the same with all forms of gold, including coins.

Yeah diversification is definitely the right approach.
If you are going to store gold overseas make sure it's with a reputable company.

I disagree with you about storing gold at home. Just use common sense and most things can be achieved.

 

[SoldierMan]

Interesting thread - I'm also looking at physical gold. Gold Britannia coins look like a good option - they are recognised as currency in the UK, and are therefore VAT and CGT free there. Insured storage is pricey @ 0.78% p/a, which is much higher than the expense ratios on most gold ETFs. The spread is also quite high.

Gold ETFs have superior liquidity and smaller spreads than physical gold, so you can buy/sell very quickly and easily if you need to, but there are multiple levels of counterparty risk which you're exposed to. Investopedia has listed the popular paper options here:

Top 6 Low Cost Gold ETFs

Investopedia provides a list of top gold ETFs and similar products that charge the minimum fee

www.investopedia.com

I think storing physical gold inside SA in a vault, or in your house, defeats the purpose of the asset. You make yourself a prime target for thieves (which arguably includes government).

They can't steal what you don't have Besides how would anyone know what you do or don't have in your house.

ETFs are all good and well until their true value is revealed and you lose it all. I think the current figure that is bandied about is that the paper vs physical gold ratio is about 250:1, so for every ounce of gold there is 250 ounces of paper. I suspect that it is much higher than that.

You don't want to get stuck on the wrong end of that trade. Remember an ETF is only the promise of gold, you don't actually own it. It's a game of musical chairs, when the music stops who is going to end up with the 1 ounce of gold and who is going to be on the end of 250 worthless paper promises.

Sure that game could go on for a while yet, or the S could HTF any day. I'd rather be safe than sorry.

 

[JayM]

They can't steal what you don't have Besides how would anyone know what you do or don't have in your house.

I'm assuming you'd want to insure it. So for starters, your insurer/broker would know. My stepbrother's place got burgled while he was away. They stole everything, including the wiring, skirting boards, stuff in the ceiling. I hope you have a really good hiding place, that is also completely fire-proof. It's also not hard to determine your real identity from your online persona. And say you need to skip the country with your gold, how are you going to do that? You'll get nabbed at the airport - any excess currency, securities, precious metals need to be declared to SARS upon departure - it's not just KR which have their own rules.

ETFs are all good and well until their true value is revealed and you lose it all. I think the current figure that is bandied about is that the paper vs physical gold ratio is about 250:1, so for every ounce of gold there is 250 ounces of paper. I suspect that it is much higher than that.

There are ETFs which are based only on physical gold deposits, rather than contracts. But yes, you'd still have counterparty risk if the fund manager screws up, or are crooked. Whether this risk is greater than storing it in your house is doubtful.

I'd rather be safe than sorry.

Keeping gold in your house is never going to be safe. If you want physical, buy and store it in another country.

 

[Speedster]

Gold is roughly 50 ml per kg, which is worth close on R1m. There is certainly a risk in self storage, but most of us could hide something that size really well in our homes.

 

[SoldierMan]

Something else from a different angle. Say you were trading/selling and someone wanted to give you silver, would you consider these 1oz silver medallions given that you know nothing about them. I'm considering buying them but they have no writing on them indicating that they are 1oz rounds of silver. Mistake on the makers part IMO.

So would you consider accepting them as payment given the lack of writing or would something like the American Silver Buffalo round be more acceptable.