Owning physical gold rather than gold on paper

[Bman]

I'm having a debate with a friend and I'm wondering if someone could help educate me.

Besides the fact that you physically know the gold exists because you physically have property of the gold, what benefit is there to owning the gold physically over owning the gold on paper.

And if the argument is that the gold on paper may not exist, could you help me out with information that helps support that the gold may not exist and that the paper holdings would become devalued or worthless.

[Live_Free_Or_Die]

Control

[Bman]

Control

Is that to say you can be forced to sell the paper?

[Live_Free_Or_Die]

Is that to say you can be forced to sell the paper?

When I posted I was not envisioning a bunch of different scenarios. Just answering your question and pointing out if you have possession you have control. If you do not have possession you do not have control.

[peacepotpaul]

Is that to say you can be forced to sell the paper?

no, if anything, you can be forced to give up your physical metal if confiscation ever comes. you don't need to sell your paper, you can be screwed anytime on it (just like a deed to a house, it's ultimately a piece of paper)

[hugolp]

no, if anything, you can be forced to give up your physical metal if confiscation ever comes. you don't need to sell your paper, you can be screwed anytime on it (just like a deed to a house, it's ultimately a piece of paper)

If confiscation ever comes it is more probable that you lose your gold-paper that if you have the gold in your posesion. When facist FDR confiscated the gold in 1933 it is calculated that he only got between 12 and 15% of the gold of the USA citizens. The rest just went into hiding. It would be a lot of work and above all it would give a horrible image if the goverment had to send the police to each house and searched for gold. It would look like a police state, and it would make people angry. They will avoid that.

BUT paper gold and the suposed gold that is owned by the gold companies, that is easy to track and confiscate. The goverment will settle the case paying you in paper (FRN dollars) at a desfavorable price for you and that will be all.

If you own gold its hard to track, and even if there is registers of you buying gold you can allways say you gave it as a present to your causin in Australia (or whatever). But if you own paper gold that can be easly confiscated.

[peacepotpaul]

If confiscation ever comes it is more probable that you lose your gold-paper that if you have the gold in your posesion. When facist FDR confiscated the gold in 1933 it is calculated that he only got between 12 and 15% of the gold of the USA citizens. The rest just went into hiding. It would be a lot of work and above all it would give a horrible image if the goverment had to send the police to each house and searched for gold. It would look like a police state, and it would make people angry. They will avoid that.

BUT paper gold and the suposed gold that is owned by the gold companies, that is easy to track and confiscate. The goverment will settle the case paying you in paper (FRN dollars) at a desfavorable price for you and that will be all.

If you own gold its hard to track, and even if there is registers of you buying gold you can allways say you gave it as a present to your causin in Australia (or whatever). But if you own paper gold that can be easly confiscated.

I think you misunderstood me, I was in no way suggesting that paper gold is harder to confiscate, but rather, it's easier to lose in other ways. I only brought up confiscation to point out that, you don't need to worry about being "forced to sell" something you "hardly own and see".

[tmosley]

Physical gold can be smuggled out of the country on your person, as it does not set off metal detectors.

[Bruno]

Physical gold can be smuggled out of the country on your person, as it does not set off metal detectors.

I did not know that

[NewFederalist]

If you are owning gold (or silver, platinum etc.) in an self directed IRA it is certainly easier to own Exchange Traded Funds (ETFs) and less costly as well since there are no direct storage fees. If your intention is to own gold or other precious metals to be prepared for a possible currency collapse then physical ownership is the way to go. In the latter case I would think a selection of various size (weight) non-numismatic coins would make sense since most likely no one will be able to make change.

[Bern]

possession is nine-tenths of the law

And if the argument is that the gold on paper may not exist, could you help me out with information that helps support that the gold may not exist and that the paper holdings would become devalued or worthless.

Try reading over at www.gata.org and www.zerohedge.com.

Some background:

...
What can be seen very clearly is that from July to November 2008 the two US Banks went from having just 9% of the total commercial net short position to having 99%! The correlation with price is evident. The indisputable conclusion is that these two banks dominated the market to the extent they represented the entire net short position of the commercials and as such they controlled the price of silver, which is illegal. Furthermore, the amount of contracts that were sold short to achieve this represented 25% of the annual global mine production! Could there be any clearer sign of manipulation?
...
What we have observed is that two unknown banks fraudulently manipulated the COMEX silver market in 2008 with an outrageous 99% ownership of the entire Commercial Net Short position which resulted in the price of silver crashing from $20/oz down to less than $9/oz. That is a real coincidence that two banks on the hook for the equivalent of 140% of all the silver mined in one year in notional value of derivatives should suddenly get lucky that the silver price plummeted such that all those unlucky derivatives customers didn’t get to cash in their calls! Coincidences like this don’t happen. From Q3 to Q4 2008 JPM and HSBC managed to reduce their derivatives in precious metals by 6.6B$ or 43% This provides a very good reason why two banks in the middle of 2008 suddenly decided they were going to break commodity law by gaining a concentration that represented 100% of the commercial net short of the COMEX market. The most likely reason is these two banks who have manipulated the COMEX market so blatantly are the same two banks who own a monstrous oversized and unregulated derivative position which needed to be reduced.
...

Pirates of the COMEX (.PDF)

On March 23, 2010, GATA Director Adrian Douglas was contacted by a whistleblower by the name of Andrew Maguire. Maguire is a metals trader in London. He has been told first-hand by traders working for JPMorganChase that JPMorganChase manipulates the precious metals markets, and they have bragged to how they make money doing so.

In November 2009 Maguire contacted the CFTC enforcement division to report this criminal activity. He described in detail the way JPMorgan Chase signals to the market its intention to take down the precious metals. Traders recognize these signals and make money shorting the metals alongside JPM. Maguire explained how there are routine market manipulations at the time of option expiry, non-farm payroll data releases, and COMEX contract rollover, as well as ad-hoc events.

On February 3 Maguire gave two days' warning by e-mail to Eliud Ramirez, a senior investigator for the CFTC's Enforcement Division, that the precious metals would be attacked upon the release of the non-farm payroll data on February 5. On February 5, as market events played out exactly as predicted, further e-mails were sent to Ramirez while the manipulation was in progress.

It would not be possible to predict such a market move unless the market was manipulated.
...

http://www.gata.org/node/8466

... It turns out that Eric Sprott has attempted to purchase gold from the IMF, according to information provided to Kitco by Frank Holmes, CEO of US Global Investors. "I just spoke with Eric Sprott, who bid to buy [the IMF's remaining gold on the block] and they refuse to sell it." As Kitco points out, "the IMF might be holding out for a bigger buyer or a central bank or for higher prices. But Holmes argues the IMF's rejection of Sprott's bid means markets are being manipulated." Back to Holmes: "I think there is a lot of manipulation done by governments around the world in the currency markets which affect the bond markets so to me it's just normal course." ...

http://www.zerohedge.com/article/imf...its-gold-stash

(Eric apparently demands physical delivery, so the IMF wasn't interested)

OK, the markets are manipulated... so what? ...

When we put up a link to last week's CFTC hearing webcast little did we know that it would end up being the veritable (physical) gold mine (no pun intended) of information about what really transpires in the commodities market. First, we obtained direct evidence from Andrew Maguire (who may or may not have been the target of an attempt at "bodily harm" as reported yesterday) of extensive manipulation in the silver market. Today, Adrian Douglas, director of GATA, adds to the mountain of evidence that the commodities market, and the CFTC, stand behind what is potentially the biggest market manipulation scheme in the history of capital markets (we are assuming for the time being that all allegations of the Fed manipulating the broader equity and credit markets are completely baseless). Using the testimony of a clueless Jeffrey Christian, formerly a staffer at the Commodities Research Group in the Goldman Sachs Investment Research Department and now head and founder of the CPM Group, Douglas confirms that the "LBMA trades over 100 times the amount of gold it actually has to back the trades."

Christian, who describes himself as "one of the world’s foremost authorities on the markets for precious metals" yet, in the words of Gary Gensler, said "that the bullion banks had large shorts to hedge themselves selling elsewhere- how do you short something to cover a sale, I didn’t quite follow that?" and proves that current and former Goldman bankers are some of the most arrogant people alive, assuming that everyone else is an idiot and will buy whatever explanation is presented just because the CV says Goldman Sachs. Yet Christian confirms that the gold market is basically a ponzi: "in the “physical market” as the market uses that term, there is much more metal than that…there is a hundred times what there is." And there you have it: as Douglas eloquently summarizes: "the giant Ponzi trading of gold ledger entries can be sustained only if there is never a liquidity crisis in the REAL physical market. If someone asks for gold and there isn’t any the default would trigger the biggest “bank run” and default in history. This is, of course, why the Central Banks lease their gold or sell it outright to the bullion banks when they are squeezed by high demand for REAL physical gold that can not be met from their own stocks" and concludes "Almost every day we hear of a new financial fraud that has been exposed. The gold and silver market fraud is likely to be bigger than all of them. Investors in their droves, who have purchased gold in good faith in “unallocated accounts”, are going to demand delivery of their metal. They will then discover that there is only one ounce for every one hundred ounces claimed. They will find out they are “unsecured creditors”.
...

http://www.zerohedge.com/article/for...per-gold-ponzi

ummm... what? Let's see another perspective...

...
But the buyer of an ETF is likely in a different circumstance. Unlike the sophisticated speculator (like me) who buys and sells futures contracts on things like the S&P 500, currencies, gold and even oil without the intent to take delivery of a thousand barrels of crude in my driveway (that would be kinda messy, especially if the barrels were not included - and they're not!) many if not most ETF purchasers are under the belief that they are buying actual physical gold or silver that someone is holding for them in a vault somewhere.

The problem, of course, is that the so-called "gold" might not actually exist.

For a futures contract with a time-certain expiration this is not a terribly-large problem, since the "discovery date" of the seller's inability to produce (should you buy a contract and actually notice delivery) has a date on it by which you may demand (and expect) perfected delivery of an actual gold bar. If there's a "fail" there the results would be both dramatic and immediately-recognized.

ETFs are a different matter entirely. These commonly are held for years, dramatically beyond the expiration cycle of the futures markets. They also are often bought and held by people who believe they are actually holding metal - that is, as a hedge against things like currency debasement or even geopolitical collapse.

What happens if Janet's scenario is correct?

Panic, that's what. A global market meltdown in which a handful of huge banks (who are very, very short in the futures market) suddenly get assigned for delivery - and yet they don't have, and cannot acquire, enough physical gold to make delivery, because their open interest (in aggregate) exceeds the free supply available to trade.

This bankrupts these large dealers. It also bankrupts the ETFs, who suddenly are "discovered" as having "leased" out all their gold - that is, they're holding worthless paper promises to replenish their depository written by someone who has unfortunately become insolvent.
...

http://market-ticker.org/archives/21...n-Markets.html

Is this tin foil hat territory? Could the markets really be manipulated so outlandishly for so long?

A letter from Fed Chairman Arthur Burns to President Ford in 1975 shows that gold price suppression then was commanding the urgent interest of the highest officials of the U.S. government:

http://www.zerohedge.com/article/smo...ntrolling-gold

...
On June 3, 1975, Fed Chairman Arthur Burns, sent a "Memorandum For The President" to Gerald Ford, which among others CC:ed Secretary of State Henry Kissinger and future Fed Chairman Alan Greenspan, discussing gold, and specifically its fair value, a topic whose prominence, despite former president Nixon's actions, had only managed to grow in the four short years since the abandonment of the gold standard in 1971. In a nutshell Burns' entire argument revolves around the equivalency of gold and money, and furthermore points out that if the Fed does not control this core relationship, it would "easily frustrate our efforts to control world liquidity" but also "dangerously prejudge the shape of the future monetary system." Furthermore, the memo goes on to highlight the extensive level of gold price manipulation by central banks even after the gold standard has been formally abolished. ...

http://www.gata.org/node/8488

A summary of the current news on the Motley Fool leads to this conclusion:

...
I repeat: "There is a hundred times what there is." Did he learn from Bill Clinton what the definition of is is? I sure hope that kind of leverage never comes toppling down the way lesser leverage did in the mortgage securitization industry. Not to fear, assures Mr. Christian while commenting earlier on the short segment of the market, "there are any number of mechanisms allowing for cash settlements." It appears that he actually perceives no structural problem inherent in a metals market that would seek to deliver cash in lieu of physical bullion to investors who may be inclined to call this paper bluff. In some circles, one could call that for what it would be: default.

Fools may recall a couple of instances in 2008 when physical supplies of bullion were very tight even as spot prices were mired in weakness. I believe that kind of anomaly results from an enormous disconnect between a leveraged market for paper gold and a much smaller market for actual, hold-it-in-your-hands physical bullion.

Taking it all in

If you have never considered the topics of price suppression or leverage in silver and gold before, this is a lot of material to process all at once. I believe that these revelations place this entire leveraged house of cards at risk. Conceivably, all it would take would be a few deep-pocketed investors overseas to call the market's bluff by demanding physical delivery of bullion, and the world's major futures exchanges could break down before our very eyes. Adrian Douglas points out that the LBMA exchange in London alone trades some $5.4 trillion per year in "gold" on a net basis. If the leverage of paper instruments to bullion stands anywhere near 100:1, then the implications are sufficient to make the Enron debacle look like child's play. Without mincing words, if the supposed quantities of gold and silver bullion simply are not there, then we may witness the greatest incidence of fraud in financial history.

Investors with exposure to the popular gold and silver "bullion" proxies have some very critical assessments to make. Fools are encouraged to note that HSBC is the custodian for the holdings of the wildly popular SPDR Gold Trust (NYSE: GLD). On the silver side, we have JPMorgan Chase serving as custodian for the holdings of the iShares Silver Trust (NYSE: SLV). Both trusts indicate that underlying metal holdings are held on an allocated basis for the trusts, although the silver vehicle permits some 1,100 ounces of unallocated silver per trading day. This allocated nature of the holdings is enough to reassure many investors, but I still have my concerns.
...

http://www.fool.com/investing/genera...-of-cards.aspx

Continuing on the trail of exposing what is rapidly becoming one of the largest frauds in commodity markets history is the most recent interview by Eric King with GATA's Adrian Douglas, Harvey Orgen (who recently testified before the CFTC hearing) and his son, Lenny, in which the two discuss their visit to the only bullion bank vault in Canada, that of ScotiaMocatta, located at 40 King Street West in Toronto, and find the vault is practically empty. This is a relevant segue to a class action lawsuit filed against Morgan Stanley, which was settled out of court, in which it was alleged that Morgan Stanley told clients it was selling them precious metals that they would own in full and that the company would store, yet even despite charging storage fees was not in actual possession of the bullion. It appears that this kind of lack of physical holdings by all who claim to have gold in storage, is pervasive as the actual gold globally is held primarily in paper or electronic form. Lenny Organ who was the person to enter the vault of ScotiaMocatta, says "What shocked me was how little gold and silver they actually had." Lenny describes exactly how much (or little as the case may be) silver was available - roughly 60,000 ounces. As for gold - 210 400 oz bars, 4,000 maples, 500 eagles, 10 kilo bars, 10 one kilogram pieces of gold nugget form, which Adrian Douglas calculates as being $100 million worth, which is just one tenth of what the Royal Mint of Canada sold in 2008, or over $1 billion worth of gold. As Orgen concludes: "The game ends when the people who own all these paper obligations say enough and take physical delivery, and that's when the mess will occur."

Also note the interesting detour into what Stephan Spicer of the Central Fund Of Canada, said regarding his friend at a major bank, who wanted access to his 15,000 oz of silver, and had to wait 6-8 weeks for its to be flown in from Hong Kong.

It is funny that central bankers thought they could take the ponzi mentality of infinite dilution of all assets coupled with infinite debt issuance, as they have done to fiat money, and apply it to gold, in essence piling leverage upon leverage. They underestimated gold holders' willingness to be diluted into perpetuity - when the realization that gold owned is just 1% of what is physically deliverable, you will see the biggest bank run in history.

http://www.zerohedge.com/article/lat...ctically-empty

The Federal Reserve has had an active interest in controlling the price of Gold ever since Bretton Woods to maintain confidence in FRNs while allowing them flexibilty to control monetary policy (ie. inflation). They use their proxies (the too big to fail banks) to achieve the necessary manipulations. The cat's out of the bag now though. There is high risk for a Ponzi collapse in the paper market. $.02

[Bern]

I forgot... this page is somewhat nifty too:

http://the-moneychanger.com/commandments.phtml

[eric_cartman]

Physical gold can be smuggled out of the country on your person, as it does not set off metal detectors.

don't think this is true. what are all those people doing on the beach with the hand held metal detectors going over the sand?

[Dr.3D]

don't think this is true. what are all those people doing on the beach with the hand held metal detectors going over the sand?

I'm pretty sure he was being sarcastic. If not, then he was just showing his ignorance.

[tmosley]

don't think this is true. what are all those people doing on the beach with the hand held metal detectors going over the sand?

Metal detectors in airports are designed to look for weapons (namely guns) rather than bullion. Try taking an oz of gold in your pocket next time you get on a plane, if you doubt it.

Many other types of metal fail to set off the detectors, as I have gone through without taking off my belt before, which is certainly some sort of metal. A colleague of mine accidently took a knife onto a plane when it failed to set off the metal detector.

[The Freethinker]

Metal detectors in airports are designed to look for weapons (namely guns) rather than bullion. Try taking an oz of gold in your pocket next time you get on a plane, if you doubt it.

Many other types of metal fail to set off the detectors, as I have gone through without taking off my belt before, which is certainly some sort of metal. A colleague of mine accidently took a knife onto a plane when it failed to set off the metal detector.

And for those who live near border regions, you can drive bullion out of the country. My experience in crossing the Canadian border was unproblematic. The Canadian border guards did not have me turn off the engine; they did not have us walk out of the car; and, they did not go through my vehicle. And they did not, obviously, rummage my luggage.

Driving back into the United States is a different story.

[Deborah K]

I liken gold-backed paper with gold-backed currency. What eventually happens to gold backed currency, it gets replaced with credit (fiat) to fund wars. Look at the history of fiat currency in our country alone:http://www.kwaves.com/fiat.htm

Off topic a bit: Is there gold in Ft. Knox? Why won't they allow an audit? Personally, I would NEVER buy anything but physical gold.

[Acala]

Physical gold can be smuggled out of the country on your person, as it does not set off metal detectors.

I wouldn't count on it. It think metal detectors will detect any metal that conducts electricity (all of them?) if there is enough of the metal present. That includes gold and silver. I had a silver dollar in my pocket set off the metal detector at the court house.

But you CAN use gold or silver coins to bribe the guard to let your through with the rest of your stash. Can't do that with paper.

[Bruno]

I wouldn't count on it. It think metal detectors will detect any metal that conducts electricity (all of them?) if there is enough of the metal present. That includes gold and silver. I had a silver dollar in my pocket set off the metal detector at the court house.

But you CAN use gold or silver coins to bribe the guard to let your through with the rest of your stash. Can't do that with paper.

This would be easy enough to put to the test, if someone who is flying in the near future will take a gold coin with them through the metal detector.

[echebota]

The system is designed to rape you, storing your wealth in physical PMs helps you to ease the pain of being raped. Hints: capital gain tax, death tax, sales tax, soon VAT, creditors, government programs, ...

[tmosley]

https://www.kitcomm.com/archive/index.php?t-19110.html

I'll be flying next month. I'll take an oz with me.

[Bruno]

https://www.kitcomm.com/archive/index.php?t-19110.html

I'll be flying next month. I'll take an oz with me.

Cool! And thanks for the kitcomm thread!