Move From GLD And SLV Into Physical Funds

by: George Maniere

Gold sold off after hitting a high of over $1,900.00 on Tuesday August 23rd to make an intraday low of $1,715.00 on Thursday, and closed the week at $1830.00 down $1,700.00. The good news for me and my readers was that I have always been leery of the two big ETFs, SLV and GLD. They lease the gold and silver that they sell you.

I saw that this was another head fake to drive the RSI and the fundamentals down. Instead of buying back into GLD and SLV ETFs, I chose instead to redeploy the funds into the Sprott funds which I already owned. The knock on the Sprott funds is that they carry a hefty premium, but that is only the case if you are going to take possession of the gold or silver. The silver Sprott fund (NYSEARCA:PSLV) closed the week at $19.30 after having made an intraday high of $22.00 on Tuesday and the gold Sprott fund (NYSEARCA:PHYS) closed the week at $15.23 after having made a high of $16.75 on Tuesday.

I would recommend to all my readers that they move away from GLD and SLV and move instead into the physical funds. The reason is that the Sprott funds are not true ETFs. They are closed ended funds which means you are not buying shares, but rather units. The physical gold and silver is audited every year and you know that you will not wake up one morning to find that the gold and silver that has been “leased” to the two ETFs GLD and SLV are now not worth the digital bytes they are printed on. For more on this subject click here.

There are also two other fine companies that I want to diversify into as well. SGOL is the Swiss version of SLV except they really do own the gold and silver, unlike SLV and GLD which leases the gold. CEF, which holds both gold and silver in the Canadian mint, is also audited on a regular basis. While I own more than my fair share of physical, I like the ease of paper trades and I feel with these four holdings I get the safety of knowing that my gold and silver are not only real but that they are also liquid. To me it’s the best of both worlds.

Please see the chart below which shows that PSLV actually outperformed SLV in the runup last April. I can only conclude that people, while they want gold and silver as a hedge against the debasement of currencies, also want the safety of knowing their holding is backed by the underlying asset.

In conclusion, I wanted to share something I learned. Friday, my brother and I had a conversation and we came to the conclusion that silver was more like money than gold. Silver has always been called poor man’s gold, (remember I have often written that I was a gold bug since I was 8 years old and since I am now 58 I had many years of going to the store for my mother with two quarters for milk and bread and, yes - those quarters were silver). What was particularly striking was that neither my brother nor I could ever remember in our lives using gold as money but using silver as money was just a plain common occurrence.

Disclosure: I am long GLD, SGOL, PHYS, UGL, CEF, DZZ, SLV, PSLV, AGQ, but I will be moving these funds into PHYS, PSLV, SGOL and CEF and when the situation warrants I will invest in AGQ for silver and DZZ for gold for a day trade. As long as there is runaway debt contagion and worthless paper money I will continue to hold my physical gold and silver and these funds.