Gold & ETFs
The Financial Times – Good as GLD:
While it has now become possible to buy and sell gold with a few mouse clicks through funds like the $51bn SPDRS Gold Trust (GLD), now the world’s second-largest exchange-traded fund and sixth-largest owner of gold worldwide, old-fashioned ownership of bars, coins or stakes in mines has surged too. But, unlike shakier exchange traded notes, gold ETFs are backed by physical assets rather than pieces of paper.
It is debatable whether profligate governments and easy money justify gold as a financial investment, but the notion that one can only trust tangible gold is more than a bit ridiculous. So is the notion of a gold shortage. More than any other commodity, the amount of gold above ground far exceeds actual consumption. History has shown that, even during war, hyperinflation or famine, someone will always sell or barter their gold. And suggestions that governments, whose currencies are no longer backed by precious metals, would confiscate gold as the US did in the 1930s or that they are engaged in a conspiracy to distort gold reserves, are outright paranoid. Part of gold’s historical appeal was its portability and immutability. But insisting on direct ownership only makes investing in it unnecessarily cumbersome and expensive. The only people who profit are miners, promoters and vault manufacturers, not the fearful goldbugs themselves.
Comment
As we posted on May 13, gold hit record highs in many major currencies as fears about the financial system’s stability continued to rise. Over the past year gold’s popularity has made the GLD fund the second-largest ETF with just under $50 billion in assets, trailing only State Street’s SPY fund in terms of total assets. The next largest gold fund in terms of assets, COMEX Gold Trust’s IAU, has roughly $3 billion in assets (not pictured).
<Click on chart for larger image>
With this increase in popularity comes much increased scrutiny about the fund, although a quick glance over the prospectus and quarterly statements prove many of the concerns raised by investors to be overblown.
One criticism often raised about the GLD fund is its lack of transparency regarding its holdings of physical gold. Does the fund use derivatives and own “paper gold” or does it own enough bullion to support redemptions by all its shareholders? This concern can be quickly put to rest after reading a couple points in GLD’s prospectus. First, on page 14 of the GLD prospectus (page 16 of PDF) the amount of physical gold held in its vaults is stated:
As at March 31, 2010, the amount of gold owned by the Trust was 36,324,952 ounces with a market value of $40,520,483,790 (cost – $30,289,189,919), including gold receivable of 166,431 ounces with a market value of $185,653,480 based on the London PM Fix on March 31, 2010. As at March 31, 2010, the Custodian held 36,158,521 ounces in its vault (36,158,483 ounces of allocated gold in the form of London Good Delivery gold bars and 38 ounces of unallocated gold), excluding gold receivables, with a market value of $40,334,830,509 (cost – $30,103,536,538).
Still, some are concerned that GLD may actually only own gold in paper (derivative) form rather than physical bullion. Page 16 of the GLD prospectus (page 18 of PDF) comments on the use of derivatives:
The Trust does not invest in any derivative financial instruments or long-term debt instruments.
Furthermore, investors can view a list of each individual bar of gold held in the vault by serial number which is updated daily. An independent firm verifies these holdings twice a year.
While these concerns are definitely understandable in a time when derivatives are considered toxic in every form, the GLD fund makes every effort to calm investors fears in this respect.
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June 17th, 2010 at 10:43 am
Since you can’t ask for deliver of the metal you should not be so sure they are investing in the real thing.
They could be leasing the metal , swaps, futures , etc .
Funds GLD , SLV , etc are only playing the long side of the equation meanwhile the short positions Masters like JPM , HSBC, etc are playing against you . IMHO
For many years and many times , Market Regulators has been “analyzing” the short position concentration for Silver , 2 big banks are involved in shorting silver equivalent to half year’s total production . CFTC has limited long positions but doing nothing with Short’s !! In spite of the proofs , whistleblowers and elapsed time , well , They haven’t taken any position or found anything … lol!!
In my opinion , those metal ETF are just playing with “paper metal” since they don’t charge you a penny for transportation, custody , insurance , buy/sell fees , etc , those “ETF FUNDS” are simply too efficient to be true ………and guess what ?? the Custodians of the ETF’s metal stock are ………the Banks holding and playing with short positions …….AMAZING !! RIGGED GAME !!
My 2 cents !!
June 17th, 2010 at 11:55 am
renegado100,
Your argument is somewhat disjointed. Are you alleging that State Street is defrauding investors by claiming they do not use derivatives? If so, what evidence do you have of this fraud?
On another note, the FT quote is amazingly flippant when it comes to how governments act in fiscally difficult periods. It is not outside the realm of possibility that the U.S. government would confiscate gold & silver (it has already happened in the recent past, link below) if those commodities become to competitive as a medium of exchange.
Regards,
TDL
http://www.libertydollar.org/legal/pdf/06042009_doj_pr.pdf
June 17th, 2010 at 12:14 pm
The FT author is a little over-confident about the government not confiscating gold. Anyone who thinks the government wouldn’t try to stop any medium of exchange in the U.S. from overtaking the dollar should the dollar become less valuable doesn’t realize how power-hungry our government is. Are we on the brink of it happening? No way. Would they start confiscating should people start to advertise product prices in “ounces of gold”? Absolutely.
June 17th, 2010 at 12:21 pm
poor gold bugs, it must be so exhausting living in a constant state of panic, afraid someone, somewhere is going to take what’s yours away from you.
June 17th, 2010 at 12:36 pm
Hi TDL:
Thanks for your comments , what I am saying those ETF funds are very suspicious since they don’t offer deliver , they can tell you the bar number but you don’t know the ownership about those gold bars, are they “yours” bars or just somebody else bars bought/leasing/lend it for the “audit picture” , who are the custodians ?? etc ….too many question so little answers !!
What are these ETF expenses ?? No expenses ?? No management , no transportation , no buy/sell fees , no nothing , well , Nice business model !!! THE ULTIMATE business model !!
Remember the $140 barrel Oil bubble last year ?? well , there were only long positions paper manipulation ……no huge demand for oil delivery …….no OPEC production reduction …….but nice profits for some speculators ………but in the precious metal market is the opposite situation …….no Mines’s hedging but pure, hard core price suppression in order to stop currencies meltdown !!
My 2 cents !!
June 17th, 2010 at 1:11 pm
[...] More on the gold ETFs. (Big Picture) [...]
June 17th, 2010 at 1:34 pm
@ renegade100: You CAN redeem GLD shares for physical gold, in baskets above 100,000 shares. David Einhorn did exactly that last year with $400 million in GLD shares. GLD is not a retail gold exchange, so they don’t want to be bothered dealing with your 10 share request for bullion, but if you’ve got $12+ million in GLD shares, they’ll do it for you. You need to pick it up in London, on your own dime.
No gold in GLD is allocated to you , individually. You want that, own physical, or pay up for allocated bullion.
As for ETF expenses: some people actually think the GLD ETF charges TOO MUCH, not too little. That’s why Einhorn, et al, once they have a large enough position, covert to bullion and manage it themselves – they can do it cheaper that the GLD expense fee. So I’m not sure why you think GLD charges too little.
Your points might be better received if you didn’t write like a 14 year old girl on meth !!!????!?!?!……!!!! MY 4 CENTS !!!!!??!!!!
!
June 17th, 2010 at 2:42 pm
X on the MTA,
I highly recommend you pick up a history book or two, history is replete with instances of wealth and land grabs on the part of government. Furthermore, if you are implying that wealth confiscation is not a part of contemporary U.S. governance I recommend you look into the asset forfeiture laws at the local, state, and federal level. Radley Balko has written extensively on the issue (link below.) Asset forfeiture is a contemporary method of fund government activities, it doesn’t even require the owner of the asset to be guilty of anything. This is not gold buggery, this is fact whether you like it or not.
Regards,
TDL
http://www.theagitator.com/google/?cx=partner-pub-9453823870796023%3Af87ir1gxdn6&cof=FORID%3A9&ie=ISO-8859-1&q=asset+forfeiture&sa=Search&siteurl=www.theagitator.com%2F#920
June 17th, 2010 at 5:03 pm
The fact is that there is not a lot of physical gold that has been mined. Here is what National Geographic has to say about the matter…
http://ngm.nationalgeographic.com/print/2009/01/gold/larmer-text
“For all of its allure, gold’s human and environmental toll has never been so steep. Part of the challenge, as well as the fascination, is that there is so little of it. In all of history, only 161,000 tons of gold have been mined, barely enough to fill two Olympic-size swimming pools. More than half of that has been extracted in the past 50 years. Now the world’s richest deposits are fast being depleted, and new discoveries are rare. Gone are the hundred-mile-long gold reefs in South Africa or cherry-size nuggets in California. Most of the gold left to mine exists as traces buried in remote and fragile corners of the globe. It’s an invitation to destruction. But there is no shortage of miners, big and small, who are willing to accept.”
Two swimming pools doesn’t sound like much to me.
June 17th, 2010 at 5:30 pm
Usual story “trust us we know what we are doing and you are to stupid to understand” Until we don’t…and since you are still poor you don’t count.
June 17th, 2010 at 7:01 pm
@ Steve Hamlin : I wonder how much you made as a GLD’s shill !! Well, unemployment is high and you must pay the bills .
Good luck , my 3 cents !!
June 19th, 2010 at 7:59 pm
Thanks, Jim! It’s a cautionary view. Understand what you say……CAUTION!