One negative by-product of a global economy is that cheap knockoffs can rise up in nearly any market, and can harm both the brand and reputation of the original product. In some respects, this is what has happened with the creation of gold (and silver) Exchange Traded Funds (ETFs).
From GLD to double and triple-leveraged long and short ETFs, there are ample offerings to try to entice gold investors with products that harm the brand and reputation of the original. They are literally a form of “fool’s gold.”
Gold as a Tangible Asset
First and foremost is gold’s 5000 year track record of acting as one of the most sought after tangible assets in history. There is an old adage: possession is 9/10th’s of the law. With ETF “gold”, you do not have, nor can you ever realistically hope to own any real gold.
As such, ETFs relegate gold to nothing more than a stock symbol, with the resulting ownership and utility value. They may use the word “gold” and track a price, but they certainly are not gold.
Gold as a Store of Value
Double and triple-leveraged ETFs are not a store of value. They are speculative vehicles which can quickly magnify or destroy your wealth. This is not the original “brand” that physical gold has developed over millennia.
Gold as Money
Gold is one of the oldest and most widely recognized items used for money in the world. Physical gold and silver are fungible (one bullion coin has the same intrinsic value as another), divisible, portable, durable, and can perform the functions of money: unit of account, medium of exchange, and store of value. ETFs perform none of these vital functions.
So, What’s In Your Portfolio?
Gold and silver bullion have specific functions in a person’s portfolio. Fool’s gold can be enticing; however, in the end it leaves you holding an empty shadow of the real thing.