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what is the difference between buying silver bars vs silver ETF?
- Thread starter IronFist
- Start date
Quote from 1a2b3cppp:
Question:
Why is there a difference in price between SLV/GLD and the metal futures, and the spot prices? Do they not track the same?
SLV/GLD are shares in an entity that holds physical gold. The futures price on forward gold for delivery in X months, so there's a financing/carry differential priced into the futures. There would be a risk-free arb if you could buy gold today and for delivery in 12 months for the same price. Think about it.
One thing to consider is that you can never really be sure the metals represented by the ETFs are there. The likelihood is that only a portion are actually available to the ETFs. If this is proven beyond a reasonable doubt, the prices of the ETFs would probably plummet overnight. Research this further if you really want to know about it.
There is a markup to pay to hold physical. This markup fluctuates with the demand for coins and bars.
But both bids and asks are above the spot and this makes your calculations wrong I believe. You will still be better off with the ETF there is no questions there but it is not as bad as your calculations unless I misunderstood something.
But both bids and asks are above the spot and this makes your calculations wrong I believe. You will still be better off with the ETF there is no questions there but it is not as bad as your calculations unless I misunderstood something.
Quote from 1a2b3cppp:
Some of the markups for buying phsyical gold and silver, at least online, are attrocious. Especially for the smaller amounts.
I was on apmex.com. You can buy a 1g gold bar for $77.25. It is worth $53.19. That means gold has to go up over 40% just for you to break even.
Obviously it gets a little better as you go up in size.
A 1oz gold bar, worth around $1,628 according to their site, sells for $1,675.39 (and about $50 more if you pay via credit card).
That means gold has to go up over 2% just for you to break even. That's a bit better.
...
I didn't read the thread so this could be a repeat or me butting my nose in where it doesn't belong...
That said... You will find that most precious metal ETFs are "based" on the underlying or track the mining, extractors and producers of the underlying - not the physical.
You have two choices - you essentially have tracking error both routes - either buy the silver (coins, bars, etc.) and pay the premium either to be a big boy and take physical delivery on the contracts or to buy from a pawn shop, online store, website, etc. who will gouge you....
OR
Pay the over/under performance that the "silver stocks" make versus the spot price. Even in an ETF there are costs and tracking errors.
Making a decision to buy vs. own vs. trade and physical vs. "related" stocks depends on how thick your tin-foil hat is on any given day... Do you think Paul Revere will come and raid your silverware chest to make bullets? If so you may want to own the extractors vs. the physical...
That said... You will find that most precious metal ETFs are "based" on the underlying or track the mining, extractors and producers of the underlying - not the physical.
You have two choices - you essentially have tracking error both routes - either buy the silver (coins, bars, etc.) and pay the premium either to be a big boy and take physical delivery on the contracts or to buy from a pawn shop, online store, website, etc. who will gouge you....
OR
Pay the over/under performance that the "silver stocks" make versus the spot price. Even in an ETF there are costs and tracking errors.
Making a decision to buy vs. own vs. trade and physical vs. "related" stocks depends on how thick your tin-foil hat is on any given day... Do you think Paul Revere will come and raid your silverware chest to make bullets? If so you may want to own the extractors vs. the physical...
Quote from 1a2b3cppp:
Question:
Why is there a difference in price between SLV/GLD and the metal futures, and the spot prices? Do they not track the same?
The spot price is the current price while futures are the future price agreed upon today. If you factor out carry cost, they would be even. So basically, the difference between the August gold futures and today's spot price is the cost of carrying gold until August (storage). As August comes closer, the Aug futures contract will slowly come closer and closer to the spot price until they equal out. Arbritage traders make sure of this, otherwise there would be an inefficiency they could take advantage of. They would buy spot, sell futures, store spot, and make the difference.
The SLV/GLD has other costs than just carry like futures. It also has ETF costs such as management, payroll for the administrators, etc.
Quote from IronFist:
Looks like I will be sticking with the ETFs. Are there any to consider besides SLV and GLD?
If you're buying for a long term investment, i would rather take physical over the ETFs. With the ETFs you will pay carry/storage and admin costs for the length of time you are holding the ETFs. Also, there is counter-party risk. If the company who administers the ETF goes out of business, then there may be issues. Who even knows if they are holding physical gold instead of futures contracsts which adds further counter party risk. Also, there are security issues with the ETF.
But most importantly, the essence of owning physical gold is insurance against disaster. If the dollar for instance collapses, the ETF would be pointless, depending on the actions of the government or the counterparty.