Go to bit.ly/thebestgoldguide to get the best free gold IRA guide.
Hi, my name is Jeffrey Tan. I have been an expert independent gold researcher for more than 20 years. This is my educational gold IRA podcast that will cover both the basics and intricate details of gold IRAs. Gain insights into how a gold IRA can help reduce taxes and protect wealth both before and during retirement. This podcast will also cover the world of gold, gold IRAs, money, investing, and retirement in a concise and enlightening manner.
Welcome to the gold IRA education with Jeffrey Tan podcast, where I cover the world of gold, gold IRAs, money, and investing in a concise and lightning manner. So this is episode number two of this podcast, and the topic for this episode is how physical gold held in an IRA is different than a gold ETF. So to quickly introduce myself, my name is Jeffrey Tan, and I have been an expert independent gold researcher for over twenty years. And so I have thoroughly researched the gold IRA industry also for more than ten years, and I have performed very deep investigative research on over 40 gold IRA companies, in my lifetime. So I've been an independent gold researcher for over twenty years, I've thoroughly researched the gold IRA industry for more than ten years, and I performed a very deep investigative research on over a 40 gold IRA companies in my lifetime.
Jeffrey:So I know what I'm talking about when it comes to the topic of gold and gold IRAs. And so, of course, now having said this, nothing I say here is financial investment or tax advice, and I'm only sharing information that I have learned over more than twenty years as an expert independent gold researcher. So of course if you want financial investment or tax advice, please consult the financial investment or tax advisor, and I'm only sharing information that I have learned and any decision you wish to make or not make is your own responsibility and it's completely up to you. Okay? So just to get started, I would recommend that you just get a completely free gold I gold IRA guide that is written by the best and most trusted gold IRA company from my research, that I found over over twenty years of independent gold research.
Jeffrey:And so this free gold IRA guide, will explain everything, you need to know and we'll also answer any questions you may have about gold IRAs. And so this is the best guide I have seen in my lifetime personally, and this is the best guide available anywhere in my opinion. And so also when you get this free gold IRA guide, you'll get free access to the top gold IRA experts who provide you with personalized support and help over the phone, and also, they'll they'll answer any questions that you that you may have. And this is the best guide I've seen in in my twenty years of independent gold research and also, in within that span I've looked into gold IRA companies for over a decade and this is also the best guide I've seen now within that span as well. And so, to get this free gold IRA guide, simply, just go to the web address, the address is bit.ly/thebestgoldguide.
Jeffrey:So to spell that address out, that address is, bit.ly/thebestg0ldguide. So bit.ly/thebestg0ldguide. So all the characters are lowercase and there's no spaces anywhere. So again, that address is B I T Dot L Y Slash The Best Gold Guide, and to spell that out one more time, it's B I T Dot L Y Slash T H E B E S T G 0 L D G U I D E. So that address is bit.ly/thebestgoldguide, and that's the best free guide I have seen and so, feel free to take a look at that I would encourage you to take a look at that.
Jeffrey:So again, within that web address of course, all of the characters are lowercase so all of the characters are lowercase and there's no spaces anywhere. So all the cases all of the characters are lowercase and there are no spaces anywhere. Okay, so now, first of all let's define exactly what a gold IRA is. And so a gold IRA, which is also known as a precious metals IRA, it's basically a self directed individual retirement account or an IRA for short. And that allows you to hold, that that that gold IRA then allows you to hold physical gold, silver, platinum, and palladium, within a retirement account.
Jeffrey:And you're holding fit you're holding this physical gold or other precious metals like silver, platinum, and palladium within a retirement account. And you're doing this instead of holding traditional assets like stocks, bonds, or mutual funds. So it's basically an IRA that is backed by precious metals. Okay. So now let's also define, what a gold ETF is because the topic of the show is to explain differences between holding physical gold in an IRA compared to holding, just owning a gold ETF.
Jeffrey:Okay. So a gold ETF, or exchange traded funds or ETF stands for exchange exchange traded fund. A gold ETF is a type of investment fund that allows investors to gain exposure to gold, without having to physically purchase store or insure the gold themselves. And also investors can buy and sell, gold ETFs the same way that they would buy and sell a stock. So it's so if you want to buy gold ETF you just you can just find a stock symbol for that and you can just buy that ETF and you can sell it the same way you so basically you can you can trade a gold ETF the same way that you could buy and sell a stock.
Jeffrey:Okay so now the topic of show is how is physical gold held in an IRA different than a gold ETF? So let's look at the key differences. So I'll describe the differences as they relate to several key, different categories. And so first let's look at how they differ in terms of the nature of ownership first. So regarding so let's look at the nature of the ownership and a different the difference in a nature of ownership between owning physical gold in IRA compared to owning, gold ETFs.
Jeffrey:So when you own physical gold in IRA, you basically have direct and tangible ownership. And so essentially you're the direct owner of real to actual tangible gold bullion, coins or bars. And so basically, you're not owning any shares that just represent gold or just some contract title at price. You actually own the gold yourself. Also, if in a properly structured physical gold IRA, the gold, must be what's called allocated and also segregated.
Jeffrey:And so allocated means that, it it it means that that that gold is specifically identified as belonging to your IRA and your account as not part of a general pool of gold. And then and then segregated means that it's stored separately from other assets, in a depository, and so the the goal is usually stored in depository. So the goal needs to be allocated, meaning it is specifically identified as belong to your IRA, and it needs to be segregated, which means that, it's stored separately from other assets in a depository. Also, your IRA, holds legal title to the specific gold bars or coins, so you're the beneficial owner within this tax advantage, IRA structure. And also, you have you have control over the type of physical gold you hold within that IRA, and you can choose between different types of gold bars, gold gold coins, that that can have different weights and so on.
Jeffrey:Okay. And a lot of people also have some some psychological satisfaction as well knowing that they possess a tangible physical asset. Okay. So now let's look at gold ETFs and look at how that, how that relates to I mean let's look at how the nature of ownership, corresponds to regarding to a gold ETF. So what's the nature of ownership?
Jeffrey:What is a nature of ownership for a gold ETF? So with a gold ETF, basically you have indirect or just paper ownership and that's basically when you buy shares of that's basically when you buy shares of a gold ETF and when you buy shares of a gold ETF, you're not buying physical gold. And basically what you're doing is you're buying shares in a fund that holds physical gold, and actually in some cases they might actually hold some some gold derivatives such as gold futures and contracts, and those and then and then, they're they're actually, you know, there's a fund that actually just has, gold futures in it. And so basically, your ownership is is quite indirect and you own shares of the fund, and the fund in turn owns goals. So it's it's like you have it's kind of like a derivative ownership.
Jeffrey:It's it's a you you don't have direct you don't have direct ownership. You're owning you're owning a paper, and that that paper shows that you have some shares within a fund and that fund owns gold. Now if you're a shareholder of a gold ETF like you own a gold you own some shares of gold ETF, then basically, you basically have you you basically, you basically don't have a direct legal title to the gold. And so you don't you don't you don't hold actual legal title to any specific physical gold, within the ETF ETF vaults. So the ETF itself, they will hold the legal title to the gold, but your claim is against the ETF entity basically and not directly against the gold.
Jeffrey:You just own the ETF and each and then ETF itself post legal title to the gold, but your claim is against the ETF and not directly against the gold. And so also, you do not control, the specific gold that the ETF holds. So basically, so basically, you're buying a standardized product as in the ETF, and you're not selecting individual pieces of gold yourself if that makes sense. And so the fund managers of the ETF decide what goal to buy and how to store it, and and and they will do that within the ETF stated objective. And also, gold ETFs, conceptually can be quite abstract in their in in in in what they are.
Jeffrey:So basically you're trading a financial instrument that tracks the price of gold, and the physical gold aspect is somewhat removed from, your direct experience. And then so the and some sometimes though this abstraction can make them, quite convenient as many people can access this them and also, they're they're easier to trade. Okay. So now let's look at another category of how of how, gold let's look in let's look at how physical gold in IRA differs from a gold ETF in another category. So let's look at the category of storage security and custody and let's see how, physical gold held in IRA differs of compared to a gold ETF within the category of stored security and custody.
Jeffrey:Okay. So for physical gold in an IRA, basically, you you have mandatory external custody. So basically, the IRS requires that physical gold within an IRA, must be held in an IRS approved custodian, and stored in an IRS approved depository. And so you cannot just store that that gold at home, and so, basically it must be stored within within an IRS IRS approved depository. Now, that actually can be beneficial because, these depositories that you need to store the gold in, those depositories are very highly secured.
Jeffrey:They are very specialized vaults, and they're operating companies that that specifically focus on the safekeeping of precious metals, and so they have very robust security and also they have very robust, security measures which include, for example, they'll have armed guards and security personnel, twenty four seven in in a depository. And also, they have very advanced surveillance systems, and they have and they have vaults with a very, very, they have vaults with, very, very heavy, layers of security. So they have vaults with very heavy layers of security. So basically, those vaults would have reinforced concrete, they're they're steel, and and they would they would be very very secure and and have lots of concrete, lots of steel, lots of very they're made of very strong material, to prevent any chance of theft from those vaults. And, also, those depositories, go under regular audits and compliance, and and so they they're audited regularly to make sure, that to make sure that everything is is operating properly.
Jeffrey:And, also, the access to the physical goal itself is highly restricted and is controlled by the custodian and a depository. And so and so basically, it's very, very secure and is very, very, it's it's it's it's almost there's almost zero chance of theft or anything. It's as secure as it could reasonably be in it's as it's as secure as it could as you could reasonably expect it to be. Now let's look at gold ETFs as it pertains to storage and security and custody. Now the thing is again remember for gold ETF, the the fund or the company that runs the fund deals with, the storage and the custody themselves.
Jeffrey:So basically the physical gold that's back in gold ETF is stored by the ETF issuer and typically, it's in, it's in vaults. They're located in major precious metals centers like London, Zurich, also in New York. And basically, the issuer contracts with the custodian, which is often a large bank or security firm to manage the storage and security. Also ETFs tend to store gold, in extremely large quantities because the funds tend to be, you know, like at least tens or hundreds of millions of dollars, in in in market value and and sometimes even higher than that. Right.
Jeffrey:Usually, at least hundreds of million of dollars of market value and sometimes even much higher than that. And so they have to store gold in extremely large quantities and in the form of, basically basically, in in the form of very, very, very, very large deposits. And then, basically, this allows them to store that gold, on average. Base they they allowed this allows them to store the gold for a lower price per ounce because they store in large volumes, in these in these depositories. So the cost of storing and securing the gold are basically factored into the ETFs expense ratio.
Jeffrey:And so you indirect you basically, without knowing it, you're paying for a storage indirectly through this annual, through through an annual management fee when you buy gold ETF. And so while you don't see a separate bill for the storage, these costs are part of the overall expense. And obviously, if you're a shareholder of an ETF, you do not have direct access access to the physical gold held by ETF. So you can't just take physical delivery of the gold, from a typical gold ETF. Okay.
Jeffrey:So now let's go to the next category and the next category, we'll examine how physical gold held in IRA differs, from a gold ETF in terms of liquidity and trading. So let's look at liquidity and trading and how that category, is different when you look at, physical gold held in an IRA compared to a gold ETF. So how does how do gold ETFs differ from physical gold held in an IRA when you're looking at the category of liquidity and trading. So for physical gold held in IRA, the liquidity is lower compared to gold ETF. And so basically, if you if you want to basically sell, your gold held in an in an in an IRA, there's steps you have to take.
Jeffrey:Like, you have to initiate a a sale with a with a custodian. You have to find a buyer, and then also, basically, after that, then you have to, you basically have to, settle, you have to set you have to settle the the the trade, basically, you have to settle the sale. There can be delays in transactions and also you have to deal with physical delivery, when you sell when you're selling, when you decide if you decide to sell the golden IRA. Now so what this means then is if you're if you're buying a gold IRA, the the best way to approach this, the best psychological way to approach this is you need to think of the gold you're buying as a long term investment. If you think of it as a long term investment, then you don't really have to worry, about the the low the lower liquidity of gold in a gold IRA, compared to the a gold ETF.
Jeffrey:So the the purpose of the the purpose of a gold IRA is to hold most of the time is to hold a gold as a long term investment. Now if you have if you have a long term investment mindset, then the lower liquidity, issue of a gold IRA is really not that big a problem, but it depends what your mindset is. If you wanna trade really quickly in and out of a position, then a gold ETF is probably better for you. But if you if you wanna invest in gold, you wanna invest in physical gold in this in a secure way for the long term and you and you have a long term mindset, then then a gold IRA might make more sense. So, regarding liquidity for gold ETF, yes.
Jeffrey:A gold ETF is a very highly liquid and is very easy to trade. Basically they just trade on major stock exchanges and you can just trade them just like stocks. So basically, during any stock market regular hours you can buy and sell them very quickly. And so the trading is also instantaneous and then so, you can buy and sell the shares, you know almost instantaneously. Usually if you put an order in they'll be filled within seconds, in your brokerage account.
Jeffrey:And and also, all the transactions are just settled in cash So you don't have to, like, you don't have to if if you sell a gold ETF obviously, you don't have to deliver any physical gold. So the the liquidity with gold ETFs is very very fast. And so if you are into trading the price of gold basically, then a gold ETF makes more sense to you. I mean a gold ETF might a gold ETF, might might make more sense, in that situation. If you're into a long term investing, then, basically owning physical gold might make more sense.
Jeffrey:Okay. So now let's look at another categories, regarding how gold ETFs differ from, gold held in an IRA, and let's look at the category of counterparty risk. Okay. So how how does gold, differ, from from a gold IRA I mean, pardon me. How does owning a gold ETF differ from owning gold in an IRA as it pertains to counterparty risk?
Jeffrey:Okay. So let's look at, first fiscal gold in IRA. So technically there is a depository risk, but it's very very very low. So there is a theoretical risk of depository failure or theft, but, you know, the facilities that the goal is held in if you're holding gold for an IRA, those facilities are highly regulated and insured and the insurance, should cover losses in most in most scenarios if something bad does happen. And also of course when you're choosing a depository you want to do proper due diligence, to find a reputable one.
Jeffrey:Now also now also there is technically a custodian risk and, but again, basically what a what a custodian is is a is a regulated financial institution. It's a financial institution that you're that you're dealing with regarding gold IRA. And so generally, custodial agreements are are designed to protect your IRA assets. And the risk for a custodian the custodian risk is generally a preload. But of course, you want to of course, you wanna do a lot of due diligence, before you choose your custodian.
Jeffrey:Okay? So always do do always do your own research. Always do a lot of due diligence. Just make sure that who that the person or rather the institutions that you're that you're choosing are as reliable as possible, based on other people's experiences, based on what you can research. Okay.
Jeffrey:So also, the physical gold in IRA tends to have lower counterparty risk overall, because since you own the actual physical gold, the counterparty risk is is theoretically lower compared with ETFs in terms of the goal itself. So if the custodian or depository had issues, then your claim is on specific segregated gold instead of just ETFs which, which is based instead of just, corresponding to like the all the gold that an ETF holds. So you you would have a claim on specific gold that corresponds to you so to speak, that that you that you that you own in a segregated way. And so you have lower counterparty risk overall in the terms of gold itself. Okay.
Jeffrey:So let's look at the risk associated with gold ETFs. So theoretically, there is an issuer risk associated with gold ETFs and that issuer risk means that the ETF issuer could become insolvent like if they come bankrupt or they could face financial difficulties. Now while this is highly unlikely for large major reputable ETF providers, it is a it is still a theoretical risk, And the ETF structure is designed to be, you know, very very very it's designed to it's designed to be very very unlikely to have bankruptcies. So meaning the gold is held in trust and it should theoretically be protected even if the issuer fails. So basically, generally, people holding ETFs most likely, have very low risk due to something like a bankruptcy happening.
Jeffrey:Although there's a small chance, but generally the the risk is pretty low. Also, the ETF, relies on its custodian, right, and and so it has its own custodian which is usually a bank, and it relies on this custodian to securely store the gold, and, custodian failure quick custodian failure theoretically is a risk, although these are typically although these custodians are typically large and stable institutions. And a gold ETF theoretically has slightly higher counterparty risk compared to only physical going IRA because, basically you're investing in a financial product and basically you're investing ETF shares that owns gold. And there are more layers of count there there basically more layers and counterparties involved than owning just a physical gold directly. And so basically then theoretically you could say that this could be seen as having a slightly higher, you basically have a slightly higher complexity potential for structural counterparty risk, even if the risks are generally considered low, for well established ETFs.
Jeffrey:Okay. Now another category let's look at another category, let's look at let's look at tracking error here. So let's look at the let's look at the category, of tracking error, in terms of physical gold, held in our first gold ETF. So basically, what tracking error means is that, if, so if if there's an if there's a gold ETF and their goal is to basically, track the price of gold. So for example, if you own a gold ETF, what what they what the what the gold ETF would aim to do is is basically, track the price of gold as close as possible.
Jeffrey:So for example, if say in a given day the price of gold goes up by by 2%, then you then in an ideal if the ETF was was structured perfectly then the then the price of the gold ETF would also go up at 2%. So basically tracking means how accurately the gold ETF mimics the the price of gold. So a perfect tracking would be, if would be that the exact percentage that perfect track would mean that a gold ETF would go up or down by the exact percentage that the physical price of gold goes up and or down in a given day. So the so the gold ETF aims to track the the real physical price of the physical gold. And so the and so the better that the better that tracking is, then then the less the tracking error is.
Jeffrey:If that makes sense. So gold ETFs are looking to track the percentage change in a price of gold on on on any given on any given time period. Okay? So basically so given that then, regarding tracking error, obviously, if you hold physical gold in IRA, there is no tracking error because you own the actual physical goal. So the price that the the the value of your assets is, you know, the price of the gold that you own.
Jeffrey:So there so you're not you're not, tracking it with something like an ETF. So so basically there's no concept of tracking error, when you own the physical gold itself because you actually own, that gold and that and the goal you're holding is directly tied, to the spot price of gold. Basically, of course, plus or minus any dealer markups premiums, but generally there's no tracking errors when you're when you're owning the physical gold. Now if you look at gold ETFs for example, so gold ETFs have the potential for tracking error. So the gold ETFs aim to closely track the price of gold, but there can be some tracking error and this and this again this tracking error, basically corresponds to a difference between the ETFs performance and the actual spot price of gold.
Jeffrey:And and for example, the tracking error can arise from, from from issues such as for example so what can what contributes to tracking error? So for example, expense ratios can contribute to tracking error and so the expense ratio itself reduces the ETFs returns slightly compared to pure gold movements. Also tracking error can arise from operational costs, from from basically and also tracking error can arise from market premiums or discounts, or or or other reasons. Like, basically, if if you have, an instrument that is trying to track the price of gold, there it will not be able to track the price of gold exactly 100% of time all the time because it's not the the the the instrument is not gold itself. It's only a financial instrument that's that's trying to track the price of gold the best it can.
Jeffrey:So be because of that, you're always gonna have some tracking error because you're trading a a financial instrument, and you're not trading the physical goal itself. And so so as a result, then you have some tracking error from things like because of expense ratios or operational costs or things like that, but there's other reasons as well. Okay. So let's look at the next category and see here. I'm just thinking here what the next best category would be, the what's what's the most important?
Jeffrey:What's the most important here? I'm think I'm thinking of all the things that that I've looked at over the last several years regarding the regarding these two types of investments, which which is the most next important category to go with. Okay. Let's look at, I think probably an important category to look at is, let's look at the tax implications. And let's just say hypothetically that you're holding both the gold IRA, rather let's just look at let's just look at the situation, where basically, you're holding, let's for you you're holding gold in an IRA.
Jeffrey:Right? And also and also you're also considering holding gold ETF scenario. So let's look at situation where, a gold the gold ETF is in an IRA and also your physical goal is in an IRA. So let's compare the situation where, where you where, hypothetically, right, you have either a gold ETF in an IRA structure or you have, the fiscal goal in an our in an IRA structure. So both you're comparing, having, equally you're comparing having, you know, either a gold ETF in an IRA structure or physical gold in an IRA structure.
Jeffrey:Okay? So if if you're comparing that, the case where the gold ETF and or the physical gold are both in an IRA structure, then you would have the same tax advantage treatment within an IRA. So basically both physical gold in an IRA and gold ETFs held within an IRA will benefit from the tax advantages of the IRA structure. And of course of course the tax advantages of the IRA structure correspond to tax deferred growth in a traditional IRA and also potentially tax free growth in a Roth IRA. So as long as the assets remain within the IRA, there's no immediate tax impact from price appreciation or transactions within the IRA.
Jeffrey:Now of course, there's gonna be taxation upon distribution, and this corresponds to both the case for for gold ETFs or physical gold or this court this corresponds to, both the cases where you whether you're looking at gold ETFs held in an IRA or physical gold held in an IRA. So you will have taxation upon distribution. So when you take distributions from your IRA or IRA, of course, then when you take distributions from your IRA in retirement, both physical gold distributions, if you were to go through the complex process of taking physical delivery of the gold. And also cash distributions from selling gold ETFs all will be taxed according to the IRA's tax rules. And so of course you know this this is expected when you're dealing with IRA accounts in general.
Jeffrey:That's that's expected. Okay. So basically, the why some investors why some long term investors often prefer, holding a gold IRA if they're long term investors, and and they enjoy holding physical gold. One reason they enjoy holding gold in the gold IRA is because, not everyone, not everyone, but many investors, who want to invest in gold actually want to own real physical gold and not just not and not just an ETF that's trying to track the price of gold. Of course, everybody's preference is different, but if you wanna own real physical gold, then for many investors at least who wanna own real physical gold, they will tend towards a gold IRA.
Jeffrey:Also, if they have a long term if they have a long term investment horizon and they're thinking long term, then also they would usually prefer gold IRA. Now taking the flip side of that, right, if someone is a short term trader or they invest more for short term purposes, then obviously going with a gold ETF is much more convenient it's much more convenient because a gold e for gold ETF you can trade it very very quickly. So it depends on what you're looking at there. Okay? So those are the key differences between owning gold, physical gold in an IRA compared to just buying a gold ETF.
Jeffrey:Okay? And so of course, also again, please remember to get, that completely free gold IRA guide, that's written by the best and most trusted gold IRA company. And this is the best this is the best, this is the best this is the best gold guide in general that I've found from over twenty years, of independent research as an independent gold research as an independent gold researcher. So this free gold area guide will explain everything you need to know and will also answer any questions that you might have about gold IRAs and this is the best guide I've seen in my lifetime and is the best guide available anywhere in my opinion. And also when you get this free gold also when you get this free gold IRA guide, you'll get free access to the top gold IRA experts, who provide you with personalized support and help over the phone and they will answer any questions you may have.
Jeffrey:And so I've I've looked into, the gold IRA industry for over over a decade now and is their very best most trusted experts in the entire industry and they have thousands and thousands of five star ratings. Okay. So to so to get this free gold IRA guide, just go to bit.ly/thebestgoldguide. So spell that address out. That address is bit.ly/thebestg0ldguide.
Jeffrey:So all the characters are all lowercase and there's no spaces anywhere, so again that address is bit. Or bi so again that address is bit.ly/thebestgoldguide, and to spell that out one more time, that address is B I T Dot L Y Slash T H E B E S T G 0 L D G U I D E. Again, all the characters lowercase and there's no spaces anywhere so again that u s is B I T Dot L Y Slash the best gold guide all lowercase. Okay? So thanks for listening, tune in to this podcast regularly for new episodes where provide where I will provide the most crucial so basically, please tune in to this podcast regularly for new episodes where I provide the most critical information on the topics of gold, gold IRAs, money, and investing in a concise and enlightening manner.
Jeffrey:Okay? Have a wonderful day now. Bye bye.