Cats outa the bag ! GLD not gold backed

NumbersUsacom

Its official now, at least on our local news radio. A radio personality had heard that GLD was not Gold backed and he researched it and reported that in fact it was only partially backed by Gold and that you can not convert the GLD shares to physical gold. He gave a couple of gold funds that did swap gold for shares but they were foreign, actually they existed in Switzerland.

Is it true or not about GLD, I don't know.

cars

Sounds like a bunch of hearsay to me

roadrunner

These rumors have been circulating for a couple of years now. The ease in which GLD accumulates gold inventory and moves it around seems to defy belief. Analysts like Sinclair, West, Murphy (GATA), Butler, and others feel that derivative paper backs a significant portion of GLD and probably also SLV. The GLD prospectus has been reworded and nowhere does it require the fund to hold 100% pure physical gold bullion on hand. The custodians have no real authority over how the sub-custodians handle, audit, or manage the gold. Routine physical inventories are handled by the subs and submitted up the line. Nothing prevents a paper inventory from being done as you would with your checkbook. Hence 1 derivative has the same value as 1 unit of gold.

Sinclair for one has rarely been wrong about the inner workings of PM and currency markets. If he says there is shenanigans going on, it's only a matter of time before everyone else finds out what he knows.

I would be in the camp that says it's 100% impossible for GLD to be fully gold backed....esp. since the same Wall Street banks that have killed the financial markets have their paws into GLD and SLV. I honestly believe they allowed these vehicles to come into existence so that they would have additional means to manage the gold markets. That is by drawing on physical supplies when needed to depress prices and to buy/sell derivatives in place of gold.

Until a smoking gun is presented to the SEC or CFTC, the game goes on as usual. GATA has presented much circumstantial evidence to support gold manipulation, but not enough to convince those in power (usually ex-GS employees) beyond an reasonable doubt. In PM markets reasonable doubt = 100% factual evidence...such as a written letter, email, trading order, or something like that between 2 parties showing outright fraud.

One plug for GLD is that Paulson's hedge fund has bought into a large stake of GLD (8% or 15%?). This is the same guy who bet against the big banks during sub-prime and made a killing. He's now betting against the banks again in the gold market. I am surprised that Paulson would take a such a huge stake in GLD unless he was certain the gold was all there...or at least his share. But being a shareholder with >100,000 shares entitles him to pull out his money in gold when he desires. The peons that own <100,000 shares have no such rights and would be last in line when it comes time to sell off GLD for whatever reason. They would be paid off in currency, and hopefully currency worth something. It might be pounds sterling or US dollars. If the paper gold market shows signs of beginning to unravel, I have no doubts that Paulson will start pulling out his stake slowly but surely or sell off his shares to those buying near the end of the mania. He won't be the one holding the bag in the end if such a thing does occur. His gold stake is kept overseas in London in a supposedly safe location. His fund has also bought large stakes in miners such as Kinross which again, has diversified holdings around the world, though KGC's largest mining operation is in Russia.

roadrunner

MoneyLA

And you thought that your BANK has one dollar on hand for every one dollar you have on deposit????

cladking

People have an excuse for buying SLV since silver is hard to store. It might not be
a good excuse when there's a flood of paper and it would all evaporate in the event
of a change in the pricing structure.

But why buy paper gold? Gold is insurance against calamity and inflation. Can you
really believe that paper will survive a melt down or high inflation?

Weiss

If you take out the GLD references from roadrunner's post above, and replace them with "Bernard L. Madoff Investment Securities LLC", you'll have something that sounds frighteningly similar to what the original whistle-blower of the Madoff ponzi scheme was trying to tell people several years ago.

NumbersUsacom

MONEYla, according to Obama they must have more than one dollar on deposit for every one of mine. Thats why Obama is Jumping up and down and spittin mad because of all the tarp monies given the banks and they are not lending out. Apparently its on deposit at the fed collecting a cushy overnight rate they can't resist.

NumbersUsacom

That same radio personality ended the segment advising everyone to avoid investing in GLD and instead, buy physical Gold. He did not say from whom and has not ever been a glowing gold proponent. It just seemed an odd topic for this guy to delve into.

What would happen if most investors decided they did not trust the GLD and started buying physical only?

Or, does anyone really purchase Gld shares for long term holdings or is 95%+ for 1 day through say 6 months trading purposes only?

carew4me

GLD has been wonderful to me. It provides and easy and convieninet way to ride a jump in spot , quickly liquidate for profit and
use profits for physical or to buy mining stocks.

Because Gold spot prices are fairly stable in terms of massive downside, I can buy large amount of GLD and if I am pinched on a downturn,
its easy to wait out for the upside. I have never held for more than 3 months, usually days.

Not worth it unless you can buy 400+ shares at a pop, which is not that hard if you already had built up a decent portfolio and use margin.

Exploit its strengths.

PS; at $89 per share ...its on sale right now.

OPA

<< <i>Apparently its on deposit at the fed collecting a cushy overnight rate they can't resist. >>



at .21%.....not much of a return in my book. $$$ must be going or used for something else.

roadrunner

And you thought that your BANK has one dollar on hand for every one dollar you have on deposit????

We're lucky if a bank has $5 on hand for every $100 deposited. Some are down in the 1% category which seems odd considering the money multiplier is 10-1.

The $500-$700 BILL dollars that was given to the banks, that they in turn gave to the FED for safe keeping at .21% is earning the banks something and the money is safe, at least in their eyes. And these banks know they have billions of dollars of losses coming down the pike with credit card, auto, and residential and commerical RE loans not to mention derivatives. So that money is waiting patiently to help pay the piper when it's needed. Normally the FED doesn't pay other banks interest on reserves above the min. amount they require to cover mandatory reserves. So by keeping this + rate in effect they are keeping the banks from lending out the money. This would change almost instantly should the FED start charging the banks a fee for safeguarding the money for them.

roadrunner

MrOrganic

<< <i>GLD has been wonderful to me. It provides and easy and convieninet way to ride a jump in spot , quickly liquidate for profit and
use profits for physical or to buy mining stocks.

Because Gold spot prices are fairly stable in terms of massive downside, I can buy large amount of GLD and if I am pinched on a downturn,
its easy to wait out for the upside. I have never held for more than 3 months, usually days.

Not worth it unless you can buy 400+ shares at a pop, which is not that hard if you already had built up a decent portfolio and use margin.

Exploit its strengths.

PS; at $89 per share ...its on sale right now. >>



I too use metal etf's for quick profits in jumps or dumps in spot. I am using ZSL (silver short) right now. Do you use any of the leveraged etf's?

MoneyLA

I dont know what the reserve requirements are for banks but it works this way:

you deposit $100 into a bank with (for example) a 50% reserve requirement.

the bank lends out $50. There is now $150 in circulation.

Now, you go to the bank and withdraw your $100. Okay, you get it--- your remaining $50 plus $50 from someone else's account.

and its all legal.

OPA

<< <i>I dont know what the reserve requirements are for banks but it works this way:

you deposit $100 into a bank with (for example) a 50% reserve requirement.

the bank lends out $50. There is now $150 in circulation.

Now, you go to the bank and withdraw your $100. Okay, you get it--- your remaining $50 plus $50 from someone else's account.

and its all legal. >>



I believe the Bank reserve requirements are much lower than the 50% ... less than 10%, but I may be wrong

MoneyLA

here's the chart of reserve requirements from the Fed's web site:

Chart from Fed

It is low.

roadrunner

dont know what the reserve requirements are for banks but it works this way: you deposit $100 into a bank with (for example) a 50% reserve requirement. the bank lends out $50. There is now $150 in circulation. Now, you go to the bank and withdraw your $100. Okay, you get it--- your remaining $50 plus $50 from someone else's account.

and its all legal.

It's all technically legal (assuming you agree to the legality/constitutionality of the Federal Reserve Act), but that doesn't mean it's not a monetary pyramid scheme. What happens when 10% of the people decide they want their money back at the same time?

The banks eventually lend that same $50 out (less ResReq% on each transaction) out until it effectively becomes $50xMM via the money multiplier. With lower reserve requirements the money multiplier can easily become 20-1, 30-1, 50-1,...,infinite.

roadrunner

cohodk

Who cares!!!???

The ETF is designed to track the movement of the metal. And this it does with great efficiency. Trade it --just like everything else--for what it is.

On Dec 31, 2004 GLD was 43.80 now it is 89.42 for a 104% return.
On Dec 31, 2004 Gold was 435.80 now it is 909.80 for a 109% return.

Thats incredible tracking.


And if you owned GLD, you could have sold covered calls against your position and taken in the premium. This would have increased your returns over the PM. Transactions costs are much lower and holding costs are lower. This security is covered by SIPC which protects you from malfeasance. Its a no brainer.

roadrunner

Who cares!!!??? ......the investors who think they are investing in real gold as a hedge not derivatives care.

Derivatives (ie paper) are much more efficient in tracking prices as volatile as gold than the physical element. So the ETF does do a great job in that respect. Paper assets track a paper price. But I know that if people found out that 30% of the gold wasn't there, the price of GLD would collapse as shareholders run for the exits. Those with 100,000 shares or more might actually get some gold following months/years of run arounds and litigation. The ETF was offered to the public as real gold....that's probably not true today. An investment in GLD is ultimately as good as the custodians, JPM or HSBC.

SPIC is useless in a scenario where investors actually think they have all the gold sitting in vaults with your ounces safely allocated. GLD only makes sense for shorter term trades after you have fullfilled your needs to own physical gold in hand.

roadrunner

cohodk

Roadrunner,

We've been hearing this story about GLD for the past 5 years. I imagine we will continue to hear about for the next 5 all the while GLD continues a remarkable record of tracking gold.

People are not investing in GLD cuz they want to own gold. They invest in GLD cuz they want a vehicle that tracks the price movement of gold, is efficient and economical.

If you want to own physical gold then by all means do so. I own physical gold. The continual bashing of GLD reads to me to be more of a scapegoat used by the newletter writers to continue interest in PM ownership.

roadrunner

Einhorn bailed on his fund's 4.2 MILL shares of GLD and moved into bullion stating that storage fees were actually less. Something tells me there is more to this than meets the eye.

July 14 (Bloomberg) — Greenlight Capital Inc., the $5 billion hedge-fund firm run by David Einhorn, July 14 (Bloomberg) — Greenlight Capital Inc., the $5 billion hedge-fund firm run by David Einhorn, told investors it switched all of its holdings in a gold exchange-traded fund into bullion during the second quarter.

“At a minimum this will provide some savings as the costs of storing gold are less than the fees” for the SPDR Gold Trust, the New York-based firm said yesterday in a letter to investors.

Einhorn, 40, told clients in January he was buying gold for the first time amid the threat of inflation from higher government spending. The firm, started in 1996, held 4.2 million shares of SPDR Gold Trust in the first quarter, making the gold- backed ETF its biggest holding. Gold has climbed 5.8 percent this year.

roadrunner

CaptHenway

Do you want to own gold, or do you want to own paper?

cohodk

I dont want to hold ANYTHING for longer than the minimum time required to achieve above average returns.