Paper gold is paper. An ETF is not gold, expert says

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The surge of renewed interest in gold-linked ETFs has marked a sea change for the yellow metal in 2016, precious-metals analyst Steve St. Angelo confirmed in a recent post.

After years of net outflows from gold ETFs, this changed in a big way in Q1 2016, he noted, when inflows surged to 363 metric tons for the second highest quarterly build of Gold ETFs & Funds in history, right after 2009.

The reason for the inflows? Investors are becoming increasingly worried about the stock markets and are looking for safety elsewhere, St. Angelo wrote.

But investors seeking a safe haven in gold should not confuse gold ETFs as bona-fide substitutes for physical gold ownership that centers on bullion bars, coins, and numismatic rarities.

Digital wealth can be wiped out: Gold expert Jim Rickards is making just that point in a round of media appearances to support his new book titled The New Case for Gold.

For Rickards, the rise in computer hacking as practiced by lone wolves and well as state-supported agents is the newest and best reason to own physical gold.

I run into billionaires and say, What do you have? And they say, I have stock and bonds, and I say, No, you dont. You have electrons, Rickards told Bloomberg TV. Its all digital wealth. This can all be wiped out by (Russian President Vladimir) Putin and Syria and North Korea, Iran, other countries.

Bangladesh robbed of $100 million: As an example of the vulnerability of this digital wealth, Rickards cited the recent cybertheft of about $100 million from the nation of Bangladesh, which was storing some of its wealth at the Federal Reserve, arguably the most secure bank in the world. If a sovereign nation cant depend on the Fed to safeguard its money, then how can rank-and-file citizens expect their digital wealth to be protected?

ETF gold often isnt really there: And tackling the subject of ETFs in particular, Rickards argued, You dont want ETFs. Paper gold is paper. An ETF is not gold. When you buy an ETF, its like buying a share of stock on the New York Stock Exchange. It can be digitally hacked. They shut down the Stock Exchange. People say that would never happen. The New York Stock Exchange was closed for five months from July to December 1914. It closed in Hurricane Sandy. It closed after 9/11. It closes every weekend. [A gold ETF is] a share you have to buy it and sell it. But you dont own the gold and youre not going to get the gold. You have a Comex gold futures [contract]. If all the longs took for delivery, [the ETF operators] would terminate the contract; they would basically cash-settle it because they only have about 1% of the gold relative to the open interest.

So all these paper-gold contracts, they give you price exposure when you dont need it, and theyre going to terminate you when you want it the most, thats when theyre going to terminate you and youre not going to get the gold.

If youre investing in gold for the long term and to shield your wealth from extreme events, then your core holding should be in physical bullion, not gold ETFs alone. Gold ETFs excel as trading vehicles that can track the moving price of the commodity, but as an insurance policy, they fall short in delivering absolute peace of mind. Physical bullion first, and everything else comes after!