When is paper better?

[DCFusor]

Or, when is paper backed by real metal better than say GLD?
I've been clobbered twice going long things that were really metal backed, say CEF or PHYS. Sure, both were trading a little over NAV when bought but only a few percent. Then....boom, my owning them is the kiss of death.
They are universally doing much worse than the fake rehypothecated stuff.
So, do they really not have the metal? Can they go below NAV? Seems they might be! The latter one is Sprott, for example.


Why the crazy differential here?

 

[DoChenRollingBearing]

You're not the only one to suffer "the kiss of death" as soon as you bought something. Used to happen to me all the time. Still does when I buy (physical) even, price goes right down 80% of the time.

That's why I don't trade! And the times I did were long ago, when the thievery was not as overdone (HFT, hypothecation, etc.) as today.

***

When I saw your thread title I thought you might have started a conversation re paper dollars (kept at home). So, I will comment on that, from a SHTF perspective. Namely, I would (and already do) keep THREE months worth of cash, safely hidden there at home. Bank Holiday... And in a SHTF, it would take a little while for silver to become recognized as a currency.

 

[DCFusor]

I agree with the idea of keeping some universally recognized form of money "at hand" whatever that is at the time. Heck, it needn't be fiat - it could be a drum of fuel or a stack of food, but whatever - the principle is sound.

What I was curious about here, is the "paper" stuff that purports to be "real" in the sense that say, Sprott keeps the real stuff in a vault - is getting hit a lot harder than the "fake" GLD stuff we all think doesn't actually have the metal, and was wanting to look into why that is - but not being sure how to do it, so I asked.

I know all about going long being the kiss of death in all too many things - I wasn't calling that here - and I DO trade, all the time and mostly make a lot of money at it, even with that effect present. GLD has been going down for a few months too, just not as much, and that's the question - why the difference? The selling point of things like PHYS and CEF is that they really do have the stuff, safe, so it should be more resistant to losing value than utterly fake paper, right? That's what the guys who create these types of funds claim. Obviously, this is not the case in actual fact - so if nothing else, we have a warning here for newbs.

Do people trust Sprott less than GLD??? I know, the charts you upload here are tough to read (PMBug? Can you fix that?) - but look at that divergence between the two - makes one think "compression trade" except I don't see them reconverging yet, and the percent difference is getting bigger all the time.

So, what's up with that? PHYS wasn't that far over NAV when I bought it, and now it would maybe even be under that - crazy! At least GLD so far tracks the spot prices pretty well.

 

[bushi]

I think it is all about the perception, and physical gold was all the hate in the mainstream & central bankers tube for quite a while now, how out is a bubble, and some barbaric relic, that is intrinsically worthless etc. and lets face it, not so mamy people "in" the financial markets are investing in physical, it is still somehow exotic, I'd say, especially when you have such "better", modern, leveraged instruments as paper gold at your disposal. Thats my guess.

 

[Jetstream]

Namely, I would (and already do) keep THREE months worth of cash, safely hidden there at home.

Is that 3 months of of expenses or 3 months of income?

(Yes, I know for some people that may be the same amount)

In my opinion it should be 6 months expenses.

 

[Jetstream]

"When is paper better"

When you want to write a letter and your computer is down.

 

[swissaustrian]

Synthetic ETFs like GLD often track their underlying better than pyhsical ones because the cost of management is much cheaper...
This applies to nearly all asset classes.
Here is a short overview on physical vs synthetic ETFs:
http://www.morningstar.co.uk/uk/etfs/etfsolutions.aspx?docid=324200

 

[DCFusor]

Thanks SA. That's the kind of answer I was looking for. So, people think the counterparty risk of BNY Mellon (GLD?) is enough less than Sprott on top of the rest, it seems. Neither seems too fantastic in a SHF scenario, after all, they're both paper. But you'd think the one that promises no rehypothecation would be more popular (and run a premium if anything, as Sprott has often done - just not lately) among those who are aware of the issue.

 

[pmbug]

Not sure if it's germane, but I know the premium to NAV always takes a hit when Sprott announces he's buying more metal for PHYS and PSLV. I don't own either, so I haven't taken the time to really study how they are built, but my lay understanding was that when he does that, he creates more shares diluting the value of existing ones. You might try looking up recent announcements to that effect and correlating it to the premium tracking chart.

 

[DSAbug]

As a rule of thumb..

Less than 5% premium is cheap and near a low during a bull market. However, it can go lower. Premiums being negative have been major buy signals during the bull for CEF etc.

When premiums are high(+15%), that means we are seeing speculation. You typically want to take profits during those periods if you have a profit to take.

 

[ancona]

DC said:
'When is paper backed by real metal better than say GLD?"

Ancona says:
NEVER!!!!!!!!!!!!!!! If you can't hold it you don't own it!!!

 

[DCFusor]

I think you missed my question's intent, ancona. It was never a question of physical in possesion vs any kind of paper. It was "why is paper that Sprott (or CEF) tells us has real physical behind it doing even worse than paper that doesn't even really claim that? (GLD)". Eg pure paper vs backed paper. Never paper vs physical metal in possession. Surely you don't think I'm that dumb! I trade too, and the vig on physical in possession wouldn't allow for that.

 

[ancona]

DC,
Not only do I not think you are "that dumb" I think you know all too well that if you hold anything other than physical metal, you accept that irrespective of who proffers that paper, there is a risk that you may never be able to take posession of that metal. In a confiscation, your certificates may become worthless, even if they are issued by the Pope himself. As a matter of fact, I believe you to be most likely the smartest guy I have interacted with on the web in ten years.

 

[pmbug]

Well, he didn't work for Enron. /deadpan