What’s physical gold and what’s paper gold? Why own physical gold?
Paper gold refers to certificates that may or may not be backed by the real thing, while physical gold are metals that you physically posses in the form of coins and bars. In this edition of the Market Report, Gold Specialists Will Hart and Jake Kennedy answer common questions about physical versus paper gold: Why own physical gold and not paper gold? Isn’t it a hassle to store and sell physical precious metals? And what are the advantages of owning physical gold? Listen to the entire report here:
Mark Alyn: Welcome to the Market Report from Birch Gold Group. Hi, I’m Mark Alyn. Joining me in studio today Will Hart and Jake Kennedy of the Birch Gold Group. Gentlemen, welcome back to the Market Report.
Will Hart: Thank you Mark.
Jake Kennedy: Thanks for having us back, Mark.
Mark Alyn: We are getting a lot of comments from customers asking us why they shouldn’t get paper gold instead of physical gold. So let’s talk about first what is paper gold?
Jake Kennedy: Paper gold can come in a few forms whether it’s gold stocks or ETF’s or let’s say a GLD fund.
Mark Alyn: Alright, let’s stop you here. An ETF is?
Jake Kennedy: An electronically traded fund. It’s a way of holding various gold types in, let’s say brokerage account, so you can manage it online and digitally work with it so you might trade.
Mark Alyn: And a GLD?
Jake Kennedy: It’s a symbol for the gold fund [SPDR Gold Shares]. It’s the largest gold fund; it’s backed by physical gold in a vault in New York but you never really own that gold – you own a certificate of ownership.
Mark Alyn: You can’t go to visit that gold.
Jake Kennedy: No, no, no…
Mark Alyn: It’s on paper.
Jake Kennedy: No, no, exactly. So, you are only buying a piece of paper, which is convenient if you wanna trade or jump in and out of the gold market – ride the volatility and the fluctuations of the market.
Mark Alyn: It would be good for somebody as a day trader.
Jake Kennedy: Exactly, that’s exactly what is useful. Hedge funds use it, individuals who are trying to make a fast buck use it. But it’s not really the best way to preserve wealth. That’s why people, countries, and individuals hold the physical metals, so you actually have an ownership of that.
Mark Alyn: We know that financial institutions and countries around the world are stockpiling gold right now. Isn’t that true?
Will Hart: Correct, they are not buying paper gold. Again they are not buying from a leveraged account – they are buying the Real McCoy. They are basically increasing their holdings in physical metals. I believe China now has 10% of all the gold that exists. There’s approximately 33,000 tons of gold out there. And China now over that last 4 years has purchased 10% of all of it. So, obviously there’s something going on there. As you know our dollar bill was once backed by gold – maybe there is a move there, I don’t know. But, as Jake was explaining, day-trade-wise, paper gold is what you wanna do. You don’t wanna be boxing up gold and shipping it because it defeats the whole purpose of that immediate trading, that dollar gain, that dollar loss, and being able to control that.
Mark Alyn: You guys are on the front line. You get comments from customers all the time and I know that they are asking you: “Why should I have physical gold instead of paper gold?” And to me, the first thing is: “I’m controlling my own destiny because I own it.”
Jake Kennedy: That’s exactly right. You almost become your central bank when you hold the gold. What you are really doing is taking your money and you are privatizing your wealth, so you are taking ownership. There’s no counterparty risk when you own physical gold. If the bank fails or the institution that’s holding your assets fails, which obviously happened in this country and in other countries, you can quite easily lose those assets. But when you hold the metal itself, it’s sitting in your safe or your safety deposit box. It’s gonna just stay sitting there through any financial crisis that could happen.
Mark Alyn: Recently JPMorgan was hacked. This could affect me if I’m holding paper gold?
Will Hart: No, again, any account that’s tied to one’s and zero’s is at risk of some hacker sitting somewhere on his laptop. When you have physical gold sitting in your safe deposit, box there is no hacking that. It’s there – you know where it’s at. And again you wanna turn that, those to physical coins, bars, whatever may be, into one’s and zero’s, or buy the metals back.
Jake Kennedy: I think it gives people a piece of mind, knowing that they’re not expose to having the hacker jump in and manipulate their accounts or take their accounts. Or we got a lot of concern right now from people who worry about governments coming in and manipulating accounts like they’re doing in other countries. Poland, for example, where they took 50% from their IRA’s, 401(k)’s and private accounts and converted them to government debts; they have a lot of that right now. But if you have the physical metal, either stored in an IRA through the system that we have or kept at home, nobody’s digitally manipulating anything there because it’s not possible to digitally manipulate physical gold in your safe at home.
Mark Alyn: It would seem to me also that a customer calls in and he’s kind of interested in buying physical gold and they say, “Well, my broker says that I can get the paper gold – it’s easier, I don’t have the hassle of storing it.” Is that common?
Will Hart: Yeah, we hear that all the time, and the broker is doing exactly what he is supposed to do: He is telling the client to buy a product that he sells. They do not sell physical gold. I mean, again, you don’t go to the Ford salesman and say, “Hey, I’m thinking of buying a Chevy” cause you know what the answer is gonna be. So, he’s gonna sell a product. Paper – yes it is great for day trading. If you want privacy and you want protection in a physical form, that’s what we offer.
Jake Kennedy: And he is right in many ways. It is hard to store. There’s more to it than just saying, “Hey I just transferred into a bunch of paper gold.” And really the way we’ve set up our system here, we make it very easy for someone to buy physical gold. Yes, it takes a few extra days to ship it from A to B, but we do make sure that it’s the easiest process possible; we hold hands and get it done it very quickly. In fact, I’ve got a client who was trying to sell stocks the other day and it took him 4-5 days to liquidate. I think it takes just as long to manipulate paper assets than it does physical gold. So it’s not really that difficult or any more difficult to work with physical assets than it is with paper assets.
Mark Alyn: And at the Birch Gold Group you guys make it really easy to own physical gold.
Will Hart: Absolutely, surely is. I was just gonna jump in, listening what Jake was saying about what you have brought earlier Mark. You know there’s always a talk about Bitcoins and again this is electronically traded. You know it’s all one’s and zero’s through the air waves. And you know the largest trade of Bitcoins – they got hacked. And they ended up shutting down and people were like “Wait, where are my Bitcoins?” and that company went belly up because somebody sitting lord-knows-where in the world hacked in there and stole all those one’s and zero’s. I know one of the stories that I thought was amazing where one of the gentlemen who started with Bitcoins from the beginning thought that it was a good idea and ended up having couple of million dollars sitting on his hard drive. Well, he accidentally threw his hard drive away.
Mark Alyn: Oh, no.
Will Hart: There you go. No one’s gonna throw away a box of gold, you are gonna know: “Wait a minute – electronic, one’s and zero’s – I am very skeptical on it.”
Mark Alyn: Electronically traded funds, GLDs, they are popular right now? Are they becoming more popular?
Will Hart: Actually I think they are becoming less popular. Because first off [in regard to] electronic, or exchange-traded fund as it also goes by, people are just concerned. They are reading [about] all the hacking that’s going on. The guys out there doing the hacking they are not getting dumper – they are getting smarter. This is all they do, so you know if you are asking me Mark, “Where do I want my portfolio? Do I want in my safety deposit box where I know my stacks of bars and coins are sitting or in the Internet or out there in one’s and zero’s?” I feel safer knowing that my portfolio is right there where I can reach and touch it.
Mark Alyn: And most brokers won’t agree with that.
Will Hart: Of course not, because they don’t sell it.
Jake Kennedy: I also think they are getting less popular too, and what I’ve found recently is that a lot of clients are converting from paper gold to physical gold because they are already in that mind to own the gold when they learn they can own it physically for a maximum privacy and control over their own assets they are like, “Why don’t I do that – it costs very little actually to get done.” So, they actually think they have a position in metals when we explain to them that what paper gold is, you know what we just talked about, the pros and cons; they go, “Well, I think I like the idea of physical,” so they take that percentage of paper assets and just switch them into physical metals too.
Will Hart: Mark, I really want to emphasize [that] when a client is looking to do the day trading, the broker is 100% right – that is so easy to trade in and out, in and out, but for the most people that we’ve talked to they’re looking for the long term; they’re looking for the three to five plus years to hold their metals. And that’s why having physical metals in my opinion is a smarter move.
Mark Alyn: What percentage should somebody put into physical metals or is that something that’s individual?
Jake Kennedy: I get this a lot from people who say: “My broker says I should have two to five percent.” And quite honestly, based on where we are heading, I think that is an old school thoughts. And I think that was once when stocks and the dollar were really strong and that was a smart move. Today we talk about anywhere between 15 to 30 percent just because we know we have much stronger view of where we are heading as a nation with our currency, with inflation. And you know some people don’t agree with that point of view, but for safety, as a hedge, having a larger percentage of your portfolio in physical gold is gonna protect you against many of the things that can happen. And you use it as a hedging strategy so that if things go really well, this economy turns around and stocks keep rallying, you’ve got a chunk of gold and it’s a great thing to have. But if things turn really sour, you are protecting a larger percentage of your portfolio with physical gold and it’s gonna work much harder to make up the differences if everything plays out like say the stock market maybe a 40 to 50 to 60 percent correction, or 30 to 40 to 50 percent devaluation of the dollar. Gold, as it has proven in the past, will counter-balance those losses and balance out your portfolio.
Mark Alyn: Let’s just say you had a hundred dollars because it’s an easy number to figure, or make it a million – a million dollars of gold and a million dollars in the stock market in various stocks. The stock market takes a hit, a 40%, 50% correction…
Will Hart: They are saying up to 60%.
Mark Alyn: Up to 60%, how does that affect me in my buying power, because that’s why I am holding the gold anyway?
Jake Kennedy: If the dollar doesn’t have any dramatic fluctuations in value like in 2008, your buying power shouldn’t be too affected. But what would happen if you had all your money in stocks and you lost 50% of the value of those stocks – then your buying power, you effectively lose 50% of your money. Now if you look at what happened in 2008, over the course of two years 2008-2009, stocks lost depending on which ones you had but as a general they lost 40 to 50% of their value but in that same period gold doubled it value. So if you had 50% of your portfolio in gold, 50% in stocks, it’s like a seesaw, at the end of the two years they balanced each other out.
Mark Alyn: They counterbalance…
Jake Kennedy: Exactly, and even today when we are back up to the levels of 5 years ago, having that gold in your portfolio still puts you ahead of someone who didn’t have any gold in the first place – cause it’s moved, it’s carried on moving.
Mark Alyn: In terms of ease and I just wanna reiterate this, you said that you had a client who tried to move some stock and it took 4 to 5 days to move, which is nothing really but it’s the same amount of time or less with purchasing physical gold, isn’t it?
Will Hart: Correct, the client just simply, when they are ready to turn around and sell the metals, they box it up, ship it, and we receive it and we wire them the funds or send them a check, whichever they prefer.
Jake Kennedy: And if it’s a retirement account, it’s a phone call and we liquidate on the spot.
Will Hart: Correct.
Mark Alyn: That’s the next step.
Jake Kennedy: But then obviously there’s a process to have metals moved from A to B, funds move, but we do it on the spot, we lock the price, guarantee price, and then it’s just a matter of moving from A to B which takes a few days.
Mark Alyn: Right, but it’s easy on the consumer.
Will Hart: Yes, we don’t charge, there is no cost, no fees for doing that.
Mark Alyn: And that’s a good thing. Listen, if you want information about physical gold, if you have any questions, you can write the questions to us at [email protected] There is a wealth of information, interviews, reports, and strategies at www.birchgold.com, which is our website. You can call a Gold Specialist to talk to you one on one. Call (800) 355-2116. Gentlemen again, thank you very much for joining us. This is the Market Report from Birch Gold Group. I’m Mark Alyn, we’ll see you next time.