In the world of gold investments, the recent announcement by APMEX Precious Metals stating its intention to open a 1 oz. Gold Redeemable Trust has been a significant event.
The trust, held almost exclusively in 1 oz. American Eagle bullion coins and 1 oz. Canadian Maple Leaf bullion, may be considered a viable investment vehicle by many.
But what is a gold trust exactly, and why might you consider it for your precious metals investment? This short article will explain the basics of precious metal trusts and why more companies are offering them alongside their physical stock.
How a Gold Trust Works
Like other ‘paper gold’ investments, a precious metal trust is a way to allow more investors to trade on the value of gold without making an actual investment in bullion. Trusts are often cost-effective ways to bet on the economic power of gold without going to the trouble of buying, assaying, storing and insuring the precious metals yourself.
When you invest in a trust, you are usually investing in the total value of the gold held and owned by the issuer of the trust. What you buy is not any actual gold, but a percentage of the total value of that gold, which ties your money directly to the value of the gold in the issuer’s possession.
Quality Requirements for Gold Trusts
Most reputable trusts require that their gold meets market standards of 99.95% purity and require that their stocks are inspected and assayed at least once (if not twice or more) per year. These inspections are normally conducted by certified Vault Inspectors who issue certificates available to trust-holders upon request.
The real value, aside from the time, effort and money saved by not having to store and conduct sales of the gold yourself, is that trusts can be liquidated much easier that physical stock. Another very significant advantage rests in their ability to be borrowed against, like a mortgage.
The Central Gold Trust, traded on the New York Stock Exchange under GTU, is one example of a prominent gold trust. The CGT is required by Canadian law to keep at least 90% of their gold on-site in their underground vaults and vested in long-term investment. An inspection in 2008 revealed that over 99.3% of CGT holding were in physical form.
While nothing is quite the same as a bar of gold bullion in your hand, if you’re looking for low-risk, no hassle gold-based investment you might look into investing in gold trusts.
Remember: All investments are risks, no matter how small. Always consult with a knowledgeable broker before making changes to your portfolio.