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Finally, Precious Metals ETFs I Can Safely Recommend

Written by Subject: Precious Metals
Finally, Precious Metals ETFs I Can Safely Recommend
 
Brian's note: For today's entry in our holiday silver series, we're again tapping master precious metals investor Chris Weber. Chris and I agree that physical bullion should make up the core of your gold and silver holdings. But for details on one of the safest "paper metal" investments you can find today, read on...
 
In all the years I've recommended owning precious metals, I've preferred people buy and store actual gold, silver, or platinum.
 
But this is not always possible or convenient for at least some portion of people's money. That's why since the first gold exchange traded fund (ETF) came out a few years ago, I spotlighted it.
 
Since then, both good and bad things have happened. Take the bad first: There have been repeated rumors and warnings that the storage facilities for the ETFs do not contain all the metals that are supposed to be there. Second, these ETFs have been attacked by metals bulls for being able to use their metals to short them, or loan them out.
 
The first ETF and the most popular is GLD. Aside from all the questions raised above, this is clearly more of a "tracker" ETF than a place where you can decide easily to buy and then claim physical gold. In fact, you can take physical delivery of the gold in GLD, but only if you hold at least 100,000 shares of it. Since each share of GLD is equal to one-tenth of an ounce, this means you have to have the equivalent of at least 10,000 ounces.
 
At current prices of about $1,400 per ounce, this would mean you'd have to have $14 million worth of gold to take delivery of any actual gold with GLD. I say if you've got that kind of money to put into gold, there are far better and safer ways to go.
 
Up to now, even the best ETFs I've been able to find have not been perfect. Two newer funds, SGOL and SIVR, are probably all right for gold and silver. But people have pointed out that they never say exactly where the metals are stored, just "London Bullion Market Association-approved storage vaults." But I've heard bad rumors about banks in this LBMA system. I have no way of knowing how serious these rumors are, but I've been looking around for alternatives.
 
Another potential problem with these two ETFs is that they carry no government guarantee in case they indeed turn out to be frauds.
 
There are the Canadian closed-end funds Central Fund of Canada, CEF for a mix of gold and silver and GTU for just gold. These are honest, easy to buy, and come in share prices that are small enough for the average investor. The problem is that you often pay a premium for all this. Buyers just have to hope that the premium they pay holds up when they want to sell. But there is no guarantee of that.
 
Enter ZKB...
 
Switzerland is divided into cantons, similar to the 50 U.S. states. In fact, the far smaller nation has about half the number of cantons. Nearly all of these cantons, or state governments, have long had a cantonal bank.
 
The largest of these is the one for the canton of Zurich. It is called the Zürcher Kantonalbank or ZKB. This bank, which few outside Switzerland have ever heard of (they don't encourage foreign clients), is now the third largest bank in Switzerland, behind UBS and Credit Suisse. But very much unlike those other two, ZKB is charged by law to operate in a very safe manner and not make the kind of crazy investments in, for example, the credit default swaps that have brought down many big banks.
 
In fact, ZKB is wholly owned by the cantonal government of Zurich. (Zurich is both a city and a canton.) This is a bank with a legal public service mandate to fulfill. However, don't let the "public utility" aspect of this bank fool you. Even though it employs nearly 5,000 people, it made a net income of CHF 750 million last year (US$700 million).
 
The average Zuricher has an account there, and with over 100 outlets in the small canton, no one is very far from the bank. Needless to say, this is one of the few triple-A-rated banks in the world given a top rating by S&P, Fitch, and Moody's. One big reason for this safety rating is that, unlike many other banks, under the law the canton bears responsibility for all the bank's liabilities should ZKB's resources ever prove inadequate.
 
You may see what I'm getting at here. ZKB offers ETFs in gold, silver, platinum, or palladium that trade on the Swiss stock exchange. You don't have to be a client of the bank to buy and sell them. They are publicly traded ETFs.
 
Even better, they must be matched by actual physical storage. So many bars of actual precious metals have been pouring into ZKB's vaults that they have had to drastically expand their storage facilities.
 
Perhaps best of all, the ETFs do not carry any premium or discount to the metals prices. They are worth what their weight of metals is.
 
The only downside for all these ETFs is the price. They are not priced in one ounce shares, like for SIVR in silver, or in one-tenth ounces as for SGOL for gold. Each share of the ZKB gold ETF will cost you one ounce of gold (about US$1,400) and the silver ETF share is priced at about US$2,750 right now (each share equals over 96 ounces of silver).
 
So you might only have enough to buy a few shares. And then you have to find a broker who is good enough to buy them. In theory, any broker can buy these ETFs (my readers have told me that Scottrade is able to buy them, and Schwab cannot). But there are good brokers and bad brokers, just like there are in every profession.
 
There are many more details to this situation (like pricing specifics, currency issues, and trustworthy specialty brokers who can buy shares for you), but they are outside the scope of this essay. Just know that these new funds strike me as excellent vehicles for the global investor. Never again do I have to worry about recommending any ETFs in gold, silver, or platinum.
 
Good investing,
 
Chris Weber

Editor's note: Chris Weber is one of the best investors we know – and definitely someone you should listen to. We've never seen him be wrong about a major market call, ever. Right now, Chris is recommending a simple way to hold gold (this was the investment that started his multimillion-dollar fortune)... and a currency savings account that's made him 1,700% over the years. For more on what Chris is doing with his own money, click here.


Further Reading:

Here at DailyWealth, we believe silver has the potential to rise hundreds of percent over the coming years. And we believe investors who stay current on what's happening in the silver market have an enormous advantage over average investors who don't give the asset a second thought.
 
So each day this week, we'll share a great silver idea. We hope you find them useful... and that you'll use them to make substantial gains over the coming years. Here's what we've published so far...
 
 

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