It's worthwhile to note that oversight of GLD custodians' holdings is very limited, so there's little guarantee that the gold backing your paper holdings will actually be there in some improbable (but not impossible) scenarios. Owning the gold directly diminishes those risks.
In a recent interview, precious metals portfolio manager Grant Williams asserted there have been at least some instances of custodians refusing to honor redemption requests on GLD. If true, that's a troubling development for owners of the ETF, and a good reason for long-term investors to consider bullion instead.
On the other hand, owning gold directly bring with it practical matters like insurance and storage costs. Perhaps even more significantly, spreads on buying and selling bullion can be as large as several percentage points.
Bottom line, the more liquid GLD wins over bullion for investors interested in a short to moderate-term play on gold. For those interested gold as a long-term asset preservation measure, management fees and counterparty risk are good reasons to go with bullion instead.Coins: These come in two varieties -- bullion coins and numismatic coins. The former is largely indistinguishable from buying gold ingots or bricks, and so the analysis above applies. Numismatic coins, on the other hand, are a more complex and speculative investment that requires developing considerable expertise. Overall, numismatic coins suffer from relatively lower liquidity compared to bullion, and considerably higher spreads. This is an investment area suitable for expert speculators with a deep understanding of numismatic grading standards and collector demand, not for precious metals investors. There is, however, a solid way to bet on the popularity of gold coins -- investing in companies that facilitate the exchange of coins between collectors and provide related services. A notable example is Collectors Universe (CLCT), which runs a coin exchange and provides professional coin grading services. CLCT benefits directly from increasing volumes of coins exchanged, which is, in turn, tied to public interest in gold investment. As shifting Fed policy and market uncertainties continue to drive the markets, gold is sure to remain a popular safe haven for the foreseeable future. In a market that offers a number of ways to bet on the precious metal, we encourage the savvy investor to look beyond hype and critically compare the available options. At the time of publication the authors had no position in any of the stocks mentioned. This article was written by an independent contributor, separate from TheStreet's regular news coverage.
Select the service that is right for you!COMPARE ALL SERVICES
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
- Real Money + Doug Kass + 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV