The core attributes of any physical bullion investment are absolute liquidity, no reliance on management skills and no counterparty risk. Not all precious metals investment products offer these core attributes, and with so many different types of products available it is easy to choose the wrong one. Here are some commonly asked questions, the answers to which provide essential information about a sound investment in physical bullion.
Who Owns the Gold?
There have been significant questions raised over the holdings of precious metals exchange-traded funds (ETFs). Since it is standard practice for Authorized Participants, such as banks and brokerage houses, to contribute baskets of borrowed assets to ETFs, the bullion therein may be borrowed. In the event of a 2008-style financial crisis, the lending institutions would have first claim to the gold, leaving shareholders in a precarious position.
Only gold products that do not compromise the fundamental attributes of bullion should be considered. Those attributes are: liquidity; no counterparty risk; and independent of management skills.