Overseas Gold ETFs: Safer or Gimmick?

The reasons for general bullishness in the gold market have been nearly exhausted at this point. But just in cased you have missed the reasoning behind the rush to gold, rampant money printing from the Fed, the threat of inflation, and uncertain markets among many other factors have lifted interest in the precious metal. As investors have become more and more infatuated with the commodity and the economy has continued to be sluggish, new fears of a gold confiscation have been resurfacing [for more gold news and analysis subscribe to our free newsletter].

Executive Order 6102 signed by President Franklin D. Roosevelt on April 5th, 1933 made it a crime to own physical bullion, forcing you to turn it into the government. While that has since been abandoned, many investors fear that if it could happen then, why could it not happen now? As such, many have begun storing their gold overseas in an effort to hide their gold from government entities. One of the most popular ways to achieve this exposure is by investing in two popular ETFs, the Physical Swiss Gold Shares (SGOL) and the Physical Asian Gold Shares (AGOL).

Are They Safe?

These two funds invest their gold in Switzerland and Singapore respectively, offering investors peace of mind with overseas storage. But should investors really feel safe with these products? Clearly some do, as the two combine for more than $2 billion in total assets (almost all of which comes from SGOL). Let’s say there was a gold confiscation in the U.S., some argue that these two funds are still at equal risk as anything else [see also Were Gold and Silver Manipulated Alongside LIBOR?].

The idea was presented by Peter Hug, Director of Global Trading at Kitco, at the Inside Commodities Conference this year. If the U.S. really did confiscate gold, two U.S.-listed ETFs are likely just as liable as the SPDR Gold Trust (GLD) or any other gold ETF for that matter. Who is to say that they cannot find a way to confiscate your shares of these two products, rendering them the same as any other gold holding, despite storing in foreign vaults.

The theory is certainly one that can keep you up at night, but based on the popularity of these two funds, it would appear that many have been able to get past the risk. What do you all think, are these funds actually safer, or just a gimmick to reel in investors?

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Disclosure: No positions at time of writing.

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  • http://profile.yahoo.com/VYOJG6HSCBRKUEEZZHOMQY27GI Josh

    Yea I’m sure that Europe has got Gold but I wouldn’t go so far as saying that it is in their vaults though. Even though that’s true though.