It is the age-old question posed by virtually every prospective precious metals buyer, What form should my allocation to the precious metals asset class take?. As a tangible asset broker who only deals in the physical metal for delivery to clients or their designated depositories, of course, I am prejudiced as to which form I prefer. However, there are some very good reasons why the vast majority of your financial allocation to gold, silver, and possibly the platinum group including palladium should primarily be in the form of physically possessed bullion coins and bars. It is all a matter of control and accessibility when an investor chooses to own precious metals as a hedge against a myriad of economic and financial disasters that are more than 50% probabilities in today’s world.

I will attempt to construct a chart that grades the four major forms of precious metals ownership: Physical Metal, Depository Certificates, Mining Stocks, and Exchange-Traded Funds (ETF). I do not include commodity futures contracts in this comparison because this is such a risky way to take a position in Precious Metals due primarily to the extreme 10:1 leverage employed AND the inherent volatility in the underlying assets that only a handful of extremely skilled traders will ever consistently make money using this avenue. I am also ruling out Open-End Mutual Funds, the garden variety that most investors are familiar with, due to the gross inefficiency of these vehicles for long-term holders; the constant payment of taxes on short-term and long-term capital gains due to the trading activities of the fund manager that significantly reduces the net after-tax return of mutual funds over 5-year and 10-year holding periods. And monies to pay these taxes must come from outside of this precious metals holding vehicle because mining stock dividends contained within the portfolio are more than likely to be insufficient to cover annual taxes due. Closed-end funds or the now emerging Exchange Traded Funds (ETF’s), a hybrid Closed-end Fund, are not as offending in total distributions, especially bullion related ETF’s; but they are not the model of tax efficiency either as shown below.

Feel free to comment on this comparison chart, but I think that I have been very fair in my ranking of each potential form of bullion ownership, and this comes from 32 years of hands-on investment experience, both personal and professional to include 20 years as a Registered Investment Advisor: