Gold Certificates - Pros and Cons

By: Bob Ethan .... Click on the author's name to view their profile and articles!!!

Gold Certificates And Their Pros and Cons

What are gold certificates? They are documents that prove you are the owner of gold which you don't physically hold. Normally, these certificates are issued by monetary institutions from where you purchase gold, and those financial institutions physically keep the gold for you. At least that is how it's supposed to work.

Possessing certificates of ownership is like putting your cash in a gold pool account. You hand over your cash to the company who executes the program, and when you cash out they give you any returns you will have accrued based on the present gold price. But they might not store any physical gold for you. Instead, they are believed to use your cash, and put it into whatever they are expecting to get the best returns rather than in gold, pay you the returns for gold, and pocket the remainder of their gains for themselves. That ignores the question of what happens if they make some poor investment calls and lose your money, and are not able to pay you your returns on the gold price? I'm not sure. What happens if the institution goes bankrupt what happens to your investment? If it's's not physical metal, I think it might disappear.

There are definitely positive facets of gold certificate programs. One is that you can fundamentally invest in gold at the official spot price without needing to pay any premiums for physical metal or pay any storage costs. Those premiums and storage costs can cut into your profits rather a lot, so gold certificates represent an alternative that offers you the most productive returns.

One possibility for gold certificates is the Perth Mint's gold certificate program. The Perth Mint's program is fully guaranteed by the governing body of Western Australia, which affords somewhat more of a sense of safety than having gold certificates from a private establishment that would go bankrupt and see your non-physical gold vanish. The Perth Mint's gold certificate program charges 1.75% costs on all purchases plus a $10 certificate fee, and a 0.75% fee when you sell. This is much lower than the current premiums on physical bullion which have zoomed in the current precious metals deficit. There aren't any storage costs. There's a minimum primary investment of $5000 Aussie dollars. The Mint says that each oz you purchase stays in-house of the mint and can not be taken away. Your investment is both government backed and insured by Lloyds of London. That is for basic unallocated storage ( but once again they do claim to store gold on premises for you, in some form ).

The Perth Mint also offers allotted gold storage programs, though this requires both storage costs and a fabrication fee ( to mold the gold into whatever form you choose to have put aside for you ).

Whether or not you invest in gold certificates will depend on how much faith you are prepared to put in an establishment to store your acquired gold product for you. I am personally someone who is prepared for the worst while simultaneously not paranoid, and looking for the best returns possible. Which has brought me to the conclusion that keeping a heap of bullion coins or cars as the basis of your portfolio is significant, but that on top of that base it is fine to widen and own certificates or other kinds of gold accounts that do not have allocated storage. I personally don't partake of the Perth Mint program or others like it, but I do keep gold in an e-gold account. I think those are fine as long as you know that there's a amount of risk, and pay attention to the markets while being willing to sell your certificates or egold if market demand really picks up. I would personally feel very little anxiety in investing in a Perth Mint account, though I would potentially stay away from a fiscal institution's certificate program.

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If you already have a stash of physical gold that you keep nearby for easy liquidity, then gold certificates can be a secure way to diversify your gold portfolio.

Gold Certificates are another option for diversifying your gold portfolio. Learn more about them and other issues related to precious metals at The Gold Market.

Note: The content of this article solely conveys the opinion of its author, Bob Ethan