There is no shortage of investment gurus importunately pitching paper gold and silver these days. The upshot is that paper gold and silver prices are lagging those of their physical counterparts and because the two are inseparable, they must catch up. Therefore paper investments are a bargain at today’s prices.
The argument falls apart with the assumption that two asset classes are anything alike.
One is traded on the stock market. The other on the commodity exchange. One bears third party liability and all of the risk that entails. The other has no counter-party liability whatsoever. One charges significant periodic account fees that are paid by depleting the underlying asset. The other incurs only the nominal expense of a safe deposit box. One severely limits your ability to withdraw any of your physical assets. The other is the asset, so it is always available for you to do as you wish.
Be that as it may, there is a far greater hazard inherent to paper gold and silver investments – the belief that by owning them you own physical gold and silver. The Gold Anti-trust Action Committee (GATA) says it just isn’t so.
GATA is a non-profit political action group founded to “expose, oppose, and litigate against” gold market manipulation. The organization’s exhaustive research on the markets led them to a startling conclusion: “Most of the gold and silver that the world thinks it owns probably doesn’t exist. Gold and silver paper has been sold in amounts far exceeding the metal available to cover it.”
It is the result of what GATA calls “monstrous naked short positions in the monetary metals.” GATA estimates the portion of paper actually backed by physical gold and silver to be just 20%. If the naked short were to be exposed, as GATA believes it eventually must be, 80% of paper gold and silver investments would disappear in a puff of smoke.
The flip side of such a debacle, of course, would be the windfall realized by everyone who had invested in physical gold and silver.