Precious Metals

October 3, 2012 - - Written by Richard G.

- Some pieces of this article contains information taken from an article that appeared GoldSilver.com -

When you invest your savings in gold financial're considering that there is always a risk of the counterparty (counter-part risk) is the risk that the financial institution that intermediate the purchase did not physically possess the yellow metal?

In recent years we have had the opportunity to talk with a myriad of gold investors, particularly Asian buyers. Although in Asia there is a strong tradition in investing in physical Gold, in recent years has prolificata an abundant supply of financial products coupled with precious metal prices. Therefore, we take the opportunity to explore the question of gold and its financial derivatives.

If you're considering investing in these products that make reference to gold and silver, specify which particular investment vehicle the counterparty refers.

We simplify taking the example of certain products of Asian institutions. In any case, funds or financial institutions that are Asian or European, if you want to invest in gold is always better to clarify the financial terms of the contract that will offer prior to signing it. Therefore, let's get into the shoes of a saver who wants to employ Asian part of its capital in these financial products.

• 1) Do you sell physical gold or certificates representing physical gold?

In Asia, a large share of banks offering financial products called "certificates representing physical gold" (paper gold) or "savings on precious metals" (gold passbook), or "contracts pay gold and silver" (pool accounts) .

Watch out for all three types of products are not physical gold (coins or bullion for investment) but are financial products, representative of physical gold for investment.

• 2) What are the "certificates representing physical gold"?

The "paper certificate representing physical gold" (paper gold), in legal certifies that the holder of the same title holds a substitute for physical gold. With a certificate representing gold do not have gold. In many cases do not even have the right to convert into physical gold of the same certificate.

In legal terms Anglo-Saxon, means you're creditor against a third party (ie the one that issued the certificate), which is subject to a myriad of counterparty risks, and could be exposed to additional risk of failure to bankruptcy.