I am holding the Perth Mint Physical Gold ETF (AAAU). It is backed by the West Australian State Government, and (theoretically) allows retail investors to redeem gold. GLD only allows you to redeem 100,000 shares, and the gold is stored with HSBC.
Day to day AAAU moves in line with GLD. It has a lower expense ratio (0.18% compared to 0.4%), so it degrades less:
AAAU is liquid enough to buy or sell occasionally, but if I was short term trading, I would use GLD.
Why buy gold?
- Its in a long term uptrend, since late 2018
- It will do well in a deflation environment (recession this year), and with stagflation later (inflation from money printing but no growth).
- I am uneasy buying long term Treasuries with rates so close to zero. We do not know if the Fed can allow negative nominal rates.
The time to sell will be when we get expectations of economic growth. No sign of that now. I may hold this for months, quarters, or even years.
Gold is money that can't be printed. Before I become a die-hard gold bug and doomsday prepper, I remind myself of the risks:
- Paper gold fell in the March panic. Everything fell against USD and physical gold.
- There is a constant counter-party risk: you never know if you can redeem until you do it.
- When we start getting real economic growth again, gold once more becomes a 'barbaric relic'.
For the rest of my portfolio, I am still waiting for the current bear market rally to die before I begin to buy. May be waiting a long time.
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