No, Not ETFs Too? - The Case For Storing Your Own Gold and Silver

Old habits die hard. They always do. Especially when it comes to money and investing. We tend to spend the way we've always spent and invest the way we've always invested.

Take gold and silver. Here are investments whose time has clearly come. All the signs point to it. All the stars seem aligned for it. Whether it's hyperinflation knocking on our doors, politicians spending like last month's mega-lottery winners, or socialism trying, once again, to take down democracy, there has never been a smarter time to own precious metals.

But just when victory is well within our grasp and a precious metal investment seems like the simplest thing to do, those old habits kick in and, well, we blow it.

Blame it on the "paper mindset" many American investors are burdened with. To those of us so afflicted, it isn't an investment unless it comes denominated in paper or digits, not worthy of our consideration unless it can be folded or stored in someone's computer. So it is that when these sadly biased people correctly identify the exciting opportunities in store for gold and silver, they almost always and incorrectly think in terms of paper versions of these precious metals.

They think of ETFs.

Why some folks are born with this aversion to literal investments-things with actual value as opposed to the mere representation of value-is anybody's guess. In this case, these investors prefer ETFs versus, say, a hefty $20 St. Gaudens Double Eagle or nicely toned Morgan silver dollar ostensibly because of the safety and convenience.

Safety and convenience. As it turns out, that's pretty ironic.

Striking a Paper Investor's Fancy

Gold and silver ETFs-gold and silver exchange-traded funds-were created, according to Wikipedia.com, "to give financial institutions and private investors the ability to own [precious metals] and gain exposure to the price, without the inconvenience of storing physical bars or opening a futures trading account." ETFs are traded on exchanges around the globe, including the New York Stock Exchange, providing an acceptable, even trendy way for paper investors to stock up on hard assets.

How nice. Soon other companies went a step further in the direction of alleged security by developing physical gold and silver ETFs, funds backed by "uniquely identified" precious metal bars.

Sounds great, doesn't it? Pretty foolproof? And it is...unless, apparently, you actually have to account for the gold and silver in these funds.

What's a Silver Bar or Two Between Friends?

Enter Project Mayhem Research. This is the company that developed a computer program to conduct data mining on the inventory of publicly available silver ETFs

The company published its latest findings at the end of July, and what these researchers found was pretty heartbreaking. Of the inventory of numbered silver bars held by two well-known ETFs, Project Mayhem Research uncovered "internal duplicates, rough internal duplicates, weight duplicates, statistical clustering, and cross-reference duplicates."

Put another way, the people at these funds just didn't have all the silver they claimed.

Project Mayhem Research concluded with this: "In our opinions, the only way for all of these anomalies to occur together, as noted in this paper, is via systemic fraud or gross accounting error bordering on jaw-dropping incompetence."

Yikes. Not exactly a ringing endorsement of the precious metal ETF trade.

Ain't Nothing Like the Real Thing

All of which underlines an important principle in hard asset investing: Actually own the hard asset!

There have been countless variations of the "you can trust me" gold and silver fraud, schemes where supposedly your precious metal is stored at a secure, high-tech vault located inside the remote granite mountain of a politically stable country and audited each and every day by a trusted three-letter governmental agency, or something along those lines. Sadly, it now looks like you can number some ETFs among these creative scammers. Remember, for a legitimate ETF to actually work would take something even rarer than gold:

It would take integrity.

Not that actually owning and storing gold and silver yourself is the incomprehensible and inconvenient task it's made out to be. That's laughable misinformation. Here's how easy it is: You go to the same bank you now trust for your dad-to-day finances and ask if you can rent one of their safety deposit boxes; they rent you one for next to nothing; you put your precious metals inside your box and close it; they shut and lock those big vault doors behind you; you wipe your hands and head to your car (maybe grabbing a bank lollipop along the way) and, really, that's about it.

Or, if you're more adventurous, there are an almost infinite number of ways of keeping gold and silver hidden and secure within the safe confines of your home. It might even be kind of a fun project to take on.

Either way, it's a tremendously smart move to own some precious metals in the economic and geopolitical mess we now find ourselves in. Just be sure to trust the one person in the world you know you can trust.

Yourself.

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