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Gold Certificates - Pros and Cons

By: Bob Ethan

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Gold Certificates And Their Pros and Cons

What are gold certificates? They are certificates that indicate you are the owner of gold that you don't physically keep. Typically, these certificates are issued by money institutions from which you purchase gold, and those fiscal institutions physically possess the gold for you. At least that is how it's meant to go.

Having certificates of ownership is similar to having your money in a gold pool account. You give your money to the company who runs the program, and when you redeem your certificate they give you any returns you'll have accumulated according to the current gold cost. But they may not keep any physical gold for you. Rather, they are thought to use your money, and invest it in whatever they expect to achieve the highest returns instead of in gold, pay you the returns on gold, and pocket the rest of their gains for themselves. That doesn't answer the question of what happens if they make some poor investment decisions and lose your money, and are unable to pay you your returns on the gold price? I'm not sure. What happens if the institution goes bankrupt what will happen to your investment? If it's's not a physical asset, I suspect it would vanish.

There are several good aspects of gold certificate programs. One is that you can fundamentally invest in gold at the official spot price while not having to pay any premiums for physical metal or pay any storage costs. Those premiums and storage costs can cut into your profits quite a bit, so gold certificates are an alternative that offers you the best returns.

One possibility for gold certificates is the Perth Mint's gold certificate program. The Perth Mint's program is fully protected by the govt of Western Australia, which affords somewhat more of a sense of safety than holding gold certificates from a private establishment that might go bankrupt and see your virtual gold vanish. The Perth Mint's gold certificate program charges 1.75% costs on all purchases plus a $10 certificate surcharge, plus a 0.75% fee when you sell. This is lower than the present premiums on physical bullion which have zoomed in the current gold shortage. There aren't any storage fees. There's a minimum initial investment of $5000 Australian dollars. The Mint says that each oz. you purchase remains in-house of the mint that can't be taken away. Your investment is both government backed and insured by Lloyds of London. This is for basic unallocated storage ( however once again they do claim to store gold on grounds for you, in some form ).

The Perth Mint additionally offers allotted gold storage accounts, though this needs both storage costs and a fabrication charge ( to shape the gold into whatever form you decide to have stored for you ).

Whether or not you invest in gold certificates will depend on how much trust you are ready to put in an institution to protect your bought metal for you. I am personally someone who is prepared for the worst-case scenario while concurrently not paranoid, and seeking the best returns possible. Which has brought me to the realization that having a stack of physical bullion as the basis of your portfolio is significant, but that in addition to that base it is ok to broaden and own certificates or various sorts of gold accounts that don't have allocated storage. I personally don't take part in the Perth Mint program or similar ones, but I do have an e-gold account. I suspect those are ok as long as you understand that there's some degree of risk, and observe the markets with the willingness to sell your certificates or e-gold if market demand really rises. I'd personally feel very little discomfort in making an investment in the Perth Mint's program, though I'd potentially avoid a financial institution's certificate program.

Article Source: http://depositarticles.com/

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.

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