Guest Post: Tracking Gold
Submitted by Doug Hornig of Casey Research
Tracking Gold
Recently, we’ve received a number of emails from readers asking why the primary gold ETF, SPDR Gold Trust (NYSE:GLD), doesn’t more closely track the price of gold, and other related questions. For those readers who aren’t already familiar with the workings of this innovative way to “own gold,” it’s worth going over a few of the details, because there are some common misunderstandings regarding the ETF.
The creators of GLD were as savvy as it gets. They saw a market crying for something like this and turned that need into one of the most successful new financial products ever introduced. The ETF burst upon the scene in November of 2004 and was immediately latched onto as a means of riding the gold bull market without the inconvenience of having to transport and securely store actual bullion. In the past seven years, its rise has been meteoric. It has steadily ascended the list of the world’s leading gold repositories, until today it has the sixth-largest global stash of the metal, at more than 1,230 tons, or 39.57 million ounces, worth over $70.7 billion.
First misconception: Contrary to popular opinion, the SPDR Gold Trust does not buy and sell gold. It creates and redeems paper shares in the company. These are passed through a group of market makers, who trade them on the NYSE, then deposit into or withdraw from the HSBC vault in London the corresponding amount of physical bullion, in the form of 400 oz. London Good Delivery bars.
And even that description is somewhat misleading. GLD deals only in “baskets” of 100,000 shares, with the goal being for the share price to track gold’s market value as closely as possible. Since each share represents slightly less than a tenth of an ounce of gold, that means each basket must trade close to 10,000 ounces of gold. That’d be impractical if the buying and selling had to be done on the open market.
So how do they pull it off? Well, the company is not exactly forthcoming about its inner workings, but after extensive conversations with officials, I was able to determine that what actually happens is that the gold is moved either into or out of the GLD-allocated section of HSBC’s vault, to or from another section of that same vault. When I found that out, I envisioned a guy on a yellow forklift, driving pallets laden with thousands of ounces of gold back and forth across the vault floor. Such a job.
Beyond the basics, we don’t know much. You will not be allowed to see the vault, whether or not you are a GLD shareholder and no matter how many shares you own. In fact, a high trust official in New York told me that even he isn’t allowed inside there.
For the most part, GLD does a pretty good job of following the spot price of gold. A share will never be priced exactly at the value of a tenth of an ounce of metal, simply because the trust deducts transaction fees and other expenses. But it’s close. During August of 2011, for example, the net asset value (NAV) of a share of GLD varied from 97.3635 to 97.3867% of the gold price, as fixed each day at 10:30 a.m. New York time.
However, if you are an investor in GLD, or are considering becoming one, there are a few things to keep in mind. First of all, it can’t be stressed enough that this is a paper asset. It is not a way to buy gold and have someone else store your holdings for you. That can be done in other ways. There are depositories that specialize in this service, both domestically and in foreign jurisdictions like Switzerland. But that isn’t what GLD is about.
Now, theoretically, it is true that you can convert your GLD shares to physical gold and take delivery of it. But practically, you can’t. For one thing, you have to be approved to do so (generally meaning, you’re either a broker or a market maker), and then you have to redeem a minimum of 100,000 shares. And even if you meet those qualifications, buried in the firm’s prospectus – a very tough read, by the way – is a provision stating that they have the option of redeeming such shares in cash equivalent rather than bullion.
This is to say: If there is a sudden run on physical gold, GLD is not contractually obligated to provide actual metal, in exchange for however many shares, to anyone.
Thus our position has always been: Hold as much gold in coins and bullion as you comfortably can. Use the ETFs to generate profits if you like, but make sure you realize that all of those profits will be of the paper variety.
Furthermore, there is the little matter of taxation. You may well understand that GLD shares are not a substitute for precious metals, and you may be in it only as a way to make money from a rising gold price by simply placing an order with your regular stock broker. If so, well and good. But what you may not know is that GLD shares, although they trade like stock, are not stocks in the same sense as Apple shares. Not when the taxman cometh.
If you buy shares of Apple and hold them long term, for more than a year, then sell them, you are taxed at the prevailing capital gains rate, currently 15%. Gold, however, is considered a “collectible.” If you buy gold coins, for example, and hold them long term, then sell them, your tax liability is at the rate for collectibles, presently 28%. If you sell them for a short-term profit, you’re liable for taxes at the same rate as for ordinary income, which is determined by whatever bracket you’re in.
Of course, GLD shares are not gold, as I’ve just taken some pains to point out. Ah, but here’s the rub. GLD is structured as a grantor trust, not a mutual fund. A grantor trust is ignored for tax purposes so that the investor is treated as owning a pro-rata share of the underlying holdings, not the entity as it exists on paper. That is to say, if GLD were a mutual fund, shares would be taxed at the normal capital gains rate, but because it is a grantor trust, its long-term gains are taxed at the applicable rate for the gold it holds… which is 28%.
This situation leads to some rather odd tax peculiarities. Say your ordinary income is in the 25% tax bracket. You’re actually better off selling GLD shares short term than you would be if you held them long term and got pushed into a 28% liability.
None of this is to disparage GLD. For ordinary investors, the ETF represents a way to (indirectly) participate in gold “ownership” without the hassle of actually taking physical delivery and finding a suitable place to vault your metal. Plus, there are no storage fees, bid/ask spreads, threats of theft, or dealer markups to worry about. And finally, for those who like to really play the market, shares are amenable to all the tricks of the securities trade. They can be optioned, shorted, hedged, bundled, margined, whatever. Little wonder GLD is so wildly popular.
So use GLD if you are of a mind to. Just be certain you understand what it is you are dealing with.
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Gold, bitchez
Has anyone gone through the Sprott funds like this? PHYS and PSLV? Are they really all that different than GLD and SLV?
So who is the counterparty to this gold that just magically flows from an unamed section the warehouse into GLD vaults?
Besides reading the GLD's 10k filing and realizing the truth behind this possible sham, you may want to ask yourself this:
Does the physical gold GLD claims to have, is it 100% totally unencumbered (not loaned out, not leased, etc).
US Department of Justice
950 Pennsylvania Avenue, NW
Washington DC 20530-0001
AskDOJ@usdoj.gov
Dear Attorney General Eric Holder:
In response to your open investigation regarding the suppression of silver prices in the COMEX futures markets by JP Morgan, we believe that two PM ETFs, the SLV, of which JP Morgan serves as custodian, and the GLD, of which HSBC serves as custodian, firmly deserve a thorough investigation as well. The SEC has proven itself incapable of investigating, identifying or even willing to prosecute fraud even when presented with ample damning evidence (reference Harry Markopolous and his failure to provoke the SEC to shut down Bernard Madoff?s Ponzi scheme for nine years). Consequently, we believe it is incumbent upon the Department of Justice to take the initiative to restore the confidence of the American people in US financial markets as your office stands as the last bastion of hope in defending integrity in financial markets and security regulatory agencies have proven themselves to be woefully inadequate and incapable of this task. To this end, we request an immediate investigation into the legitimacy of the SLV and GLD exchange traded funds for the following reasons.
We believe that there are far too many loopholes contained in the prospectuses and legal filings of both the GLD and SLV that present the very strong possibility, and probable likelihood, that these funds engage in deceptive and fraudulent business practices. If our suspicions about these two funds are proven to be founded, we believe that the actions involved with the administration of the GLD and SLV exchange traded funds may mirror the fraudulent actions of Goldman Sachs in the mortgage backed securities markets, whereby Goldman Sachs packaged toxic MBS into collateralized debt obligations, represented them as solid investments to their clients even as they knew otherwise, and shorted them without their clients? knowledge to turn profits. In other words, we believe that the GLD and the SLV may have been formed with the very intent of diverting investment funds away from real physical gold and physical silver to provide a vehicle to suppress the price of gold and silver in physical markets without the knowledge of those clients that choose to invest in the GLD and SLV.
Please allow us to address our concerns with the GLD exchange traded fund below, and place it on record that our concerns with the SLV are the exact same as our below stated concerns with the GLD.
The Custodian of the GLD is HSBC Bank USA, N.A., or HSBC. The Custodian is responsible for the safekeeping of the Trust?s gold bars transferred to it in connection with the creation of Baskets by Authorized Participants. The Custodian also facilitates the transfer of gold in and out of the Trust through gold accounts it maintains for Authorized Participants and the Trust.
The custodian is a market maker, clearer and approved weigher under the rules of the London Bullion Market Association, or LBMA. The Trustee is BNY Mellon Asset Servicing, a division of the Bank of New York Mellon.
There are numerous troubling descriptions in the GLD?s 10-K filing under the “Custody of the Trust?s Gold” section regarding the chain of custody that ensures that the GLD is backed 100% by fully allocated, London Good Delivery bars that have no third or fourth or fifth party claim. For example, the GLD 10-K filing states:
“The Custodian is authorized to appoint from time to time one or more subcustodians to hold the Trust?s gold until it can be transported to the Custodian?s London vault. The subcustodians that the Custodian currently uses are the Bank of England and LBMA market-making members that provide bullion vaulting and clearing services to third parties. The Custodian does not have written custody agreements with the subcustodians it selects. The Custodian?s selected subcustodians may appoint further subcustodians. These further subcustodians are not expected to have written custody agreements with the Custodian?s subcustodians that selected them.”
There are huge problems in the above custody conditions that could allow for massive fraud. Why are there no written agreements between the Custodian and the subcustodians that ensure that the physical gold the subcustodians hold on behalf of the GLD will be 100% accounted for and 100% allocated at all times? If a fund was entrusting the physical storage of a precious metal to a third party, why are no written custody agreements in place to also ensure that the subcustodians must ensure that the gold they hold consists of Good Delivery bars? If the Trust is to hold gold allocated specifically in its name (except for the allowance of no more than 430 ounces of unallocated gold as stated in its prospectus), how can they ensure that the gold its subcustodians hold is 100% allocated if no written contracts specify any qualifications for the gold they hold in behalf of the Trust? These are glaring omissions of standard business practices for a fund that at the end of March 2010, held more than $40 billion of physical gold. In the next two months alone, the GLD supposedly added nearly 25% more physical gold to their vaults as they claimed by June 1, 2010 that the dollar value of physical gold they held as of June 1 exceeded $50 billion in value. Does all this physical gold exist in allocated form in Good Delivery bars as HSBC Bank USA claims?
If we continue reading the 10-K “Custody of the Trust?s Gold”, glaring omissions of standard business procedures grow even more worrisome. This section continues:
“The lack of such written contracts could affect the recourse of the Trust and the Custodian against any subcustodian in the event a subcustodian does not use due care in the safekeeping of the Trust?s gold… However, the Custodian may not have the right to, and does not have the obligation to, seek recovery of the gold from any subcustodian appointed by a subcustodian.”
From the above passage, we must conclude that if the Custodian, HSBC Bank USA, requests the delivery of physical gold from a subcustodian and the gold is found not to exist, then the Custodian may have zero recourse and may not have a right to seek recovery of gold from said subcustodian. Furthermore, the above states that the Custodian, HSBC Bank USA, does not even have an obligation to seek recovery of that gold if it is found not to exist in physical form. This is a massive red flag to anyone that wants to ensure the legitimacy of the GLD ETF. The first and foremost responsibility of the Custodian should be to ensure that the physical gold purchased by the Trust actually exists in the manner and terms that are represented to investors in the GLD. Why does the GLD?s 10-K absolve the Custodian, HSBC Bank USA, of the responsibility of ensuring that the physical gold allegedly held by the Trust exists, that the gold held in behalf of the GLD Trust is 100% allocated, and that this gold is in the form of Good Delivery bars?
Granted, the above concerns are moot if one can prove that:
(1) all allocated gold held by the Trust is held in their vaults and not the vaults of subcustodians; and
(2) that neither subcustodians nor any third party maintain a simultaneous claim on any gold held in the vaults of the Trust.
As we will point out later in this letter, under the current business practices of the GLD, it is impossible to prove that either point (1) or (2) is true.
Of even greater concern is the following section of the description of the “Custody of the Trust?s Gold”:
“The Custodian and the Trustee do not require any direct or indirect subcustodians to be insured or bonded with respect to their custodial activities. The Custodian maintains insurance with regard to its business on such terms and conditions as it considers appropriate. The Trust will not be a beneficiary of any such insurance and does not have the ability to dictate the existence, nature or amount of the coverage. Therefore, Shareholders cannot be assured that the Custodian maintains adequate insurance or any insurance with respect to the gold held by the Custodian on behalf of the Trust.”
The above passage acknowledges that the subcustodian vaults that contain the GLD?s physical gold have zero obligation to insure the value of the gold in their vaults. If inspections of the subcustodian vaults, which the Trustee only allows a maximum of twice a year, yields zero physical gold, shareholders of the GLD would have zero recourse for their massive losses. Again, why is no insurance or bonding required for the physical storage of billions of dollars worth of gold (as of June 16, 2010) by subcustodians as it passes through the chain of custody to arrive in the GLD Trust vaults? The lack of insurance is truly mindboggling.
The above fact becomes even more odd considering that BullionVault, a private gold dealer, holds insurance with Lloyds of London for up to $600 million for each of its individual vault locations, an amount that currently exceeds the gold stored at each of its individual vault locations. Cumulatively, BullionVault, as of June, 2010 stored $930 million of physical gold, all of which is more than adequately ensured. Conversely, the GLD held, as of March 31st, 2010, more than 43 times the amount of gold held at BullionVault, yet its 10-K states that the Custodian may not maintain “adequate insurance or any insurance” on more than $50 billion worth of gold. This, despite the fact that the Trust specifically acknowledges in the GLD prospectus that “The Trust?s gold may be subject to loss, damage, theft or restriction on access” and “The Trust may not have adequate sources of recovery if its gold is lost, damaged, stolen or destroyed and recovery may be limited, even in the event of fraud, to the market value of the gold at the time the fraud is discovered.” Furthermore, the GLD prospectus clearly states: “The Trust does not insure its gold. The Trust is not a beneficiary of any such insurance and does not have the ability to dictate the existence, nature or amount of coverage.”
As of June, 2010, the amount of gold held by the GLD makes the GLD the fifth largest holder of gold in the world, ahead of the gold reserves of entire nations including China, Japan, the Netherlands, Russia, India and even the reserves of the European Central Bank. If every one of these countries/entities finds it excessively risky not to ensure the gold they hold, why does the GLD find it acceptable to not insure its allegedly massive physical gold holdings? On BullionVault?s website, BullionVault states “your gold is protected by Via Mat?s extensive physical security measures and by externally underwritten insurance” and “in a vault, gold is so secure that it is extremely easy to insure and not expensive”. If gold stored in a secure vault is extremely easy to insure and inexepensive, why does the GLD refuse to insure 100% of its holdings? This again is a huge red flag that needs to be investigated.
At first glance, the 10-K “Custody of the Trust?s Gold” section and information in the GLD?s S-3 filing seem to disperse the above concerns:
“The Custodian is obliged under the Allocated Bullion Account Agreement to use commercially reasonable efforts to obtain delivery of gold from those subcustodians appointed by it. Under the customs and practices of the London bullion market, allocated gold is held by custodians and, on their behalf, by subcustodians under arrangements that permit each entity for which gold is being held. The Custodian provides the Trustee with statements on a monthly basis which contain sufficient information to identify each bar of gold held in the Trust Allocated Account and the custodian or subcustodian having possession of each bar.”
“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 36,158,483 ounces of allocated gold in the form of London Good Delivery gold bars in its vault and 38 ounces of unallocated gold, excluding gold receivables, with a market value of $40,334,830,509 (cost – $30,103,536,538). Subcustodians held nil ounces of gold in their vaults on behalf of the Trust and 166,431 ounces of gold was receivable by the Trust in connection with the creation of Baskets (which gold was received by the Custodian in the normal course of business).”
However, upon further inspection of the GLD?s business filings, the two above statements do not put any of our concerns to rest. The existence of physical gold within the subcustodian vaults can never be proven, because the 10-K states “In addition, the Trustee has no right to visit the premises of any subcustodian for the purposes of examining the Trust?s gold or any records maintained by the subcustodian, and no subcustodian is obligated to cooperate in any review the Trustee may wish to conduct of the facilities, procedures, records or creditworthiness of such subcustodian.” Consequently, even if the subcustodian provides records and lists of each individual gold bar it holds, these holdings can never by verified if significant amounts of the GLD?s gold is stored in subcustodian vaults. In addition, even if the Trust has indeed taken delivery of all physical gold from subcustodians for storage “in its vault” as it claims in its most recent S-3 filing, we still cannot strike any of our major three concerns about the GLD from potentially being subject to fraud. Because the GLD prospectus states “The ability of the Trustee to monitor the performance of the Custodian may be limited because under the Custody Agreements the Trustee may, only up to twice a year, visit the premises of the Custodian for the purpose of examining the Trust?s gold and certain related records maintained by the Custodian.”
Even if the Custodian can prove that all the gold it claims it has purchased on behalf of its customers for the GLD exists, since inspection of its gold is allowed a maximum of twice a year, such an arrangement allows the Custodian to possibly operate a Ponzi scheme to suppress the price of gold if it so desires, one in which it would transfer into its vaults physical gold held in subcustodian vaults that has already been purchased by third parties for the purposes of inspection and then transfer it back out after the inspections have been completed. Just the potential of such an arrangement leading to fraud should create a need for more specific and meticulous vetting of the physical gold held for the Trust.
We have broached enough serious concerns in this letter to bring the legitimacy of the GLD into question. Just because HSBC Bank USA claims it physically possesses Good Delivery bars in 100% allocated form on behalf of its Trust does not make this claim a fact. Numerous procedural loopholes have been set up in the operation of the Trust that seemingly have no purpose but to prevent the determination and simple assessment that the Custodian holds gold in allocated form in Good Delivery bars. Bernard Madoff produced statements to his clients that illustrated he was engaging in trades for his clients despite the fact that he executed zero trades. The business practices of the GLD leave the GLD open to such deception as well, and were all shareholders of the GLD to take physical delivery of gold held in the Trust, we are quite certain that knowledge of the contents of this letter would introduce serious doubt as to whether the GLD could make good on all physical delivery.
A further troubling aspect regarding the form of gold held in the GLD is exposed through the GLD?s procedure for redemption of its shares into physical delivery of gold. The GLD?s prospectus claims that only “Only Authorized Participants, and no shareholders, have the right to redeem shares for actual gold” in the form of a basket that consists of 100,000 shares. The authorized participants as of March 31, 2010 were BMO Capital Markets Corp., CIBC World Markets Corp., Citigroup Global Markets Inc., Credit Suisse Securities (USA) LLC, Deutsche Bank Securities Inc., EWT, LLC, Goldman, Sachs & Co., Goldman Sachs Execution & Clearing L.P., HSBC Securities (USA) Inc., J.P. Morgan Securities Inc., Merrill Lynch Professional Clearing Corp., Morgan Stanley & Co. Incorporated, Newedge USA LLC, RBC Capital Markets Corporation, Scotia Capital (USA) Inc. and UBS Securities LLC. A good number of the firms on this list, including Deutsche Bank, Citigroup, Goldman Sachs, JP Morgan, and Scotia Capital have been known to act as bullion agents in the past for the US Federal Reserve central bank. Of this list, five of the authorized participants, Deustche Bank, Goldman Sachs, HSBC, JP Morgan, and UBS, are market makers that establish the daily London AM and PM price fix for gold.
However, of greater concern is the following. The GLD?s 10-K dated March 31, 2010 states, “the Custodian held 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” yet the GLD?s prospectus states “Gold bars allocated to the Trust in connection with the creation of a Basket may not meet the London Good Delivery Standards and, if a Basket is issued against such gold, the Trust may suffer a loss.” Given that all of the gold held by the Trust is in the form of allocated London Good Delivery gold bars except for gold receivables held in subcustodian vaults and only 38 ounces of the gold are unallocated, why should the Custodian of the gold, HSBC Bank USA, issue a disclaimer that the gold delivered to authorized participants may not be in the form of London Good Delivery bars? Furthermore, procedure for the creation of baskets of gold for share redemption deem that this gold must be drawn from unallocated accounts, which does not make sense if 100% of the Trust gold is to be allocated once it is in the possession of the Trust?s vault.
However, the lack of ability to confirm that any physical delivery of gold will be Good Delivery bars becomes even more suspicious if one reads the statement in the GLD 10-K?s filing that states, “Unless otherwise agreed by the Custodian in writing, the only gold the Custodian will accept in physical form for credit to the Trust Unallocated Account is gold the Trustee has transferred from the Trust Allocated Account.” Thus if any gold transferred to the Trust Unallocated Account comes from the Trust Allocated Account and all gold held in the Trust Allocated Account is London Good Delivery gold bars, why is HSBC Bank, USA, unable to confirm that gold delivered via the Trust Unallocated Account are also London Good Delivery gold bars?
Finally, the procedural inconsistencies throughout the filings of GLD open up the possibility that Authorized Participants, specifically the LBMA market makers, possibly use GLD shares to manipulate gold prices in the futures markets as well. The GLD 10-K states that
“Certain Authorized Participants are expected to have the facility to participate directly in the gold bullion market and the gold futures market.” In July, 2009, Mr. Adrian Douglas of GATA stated that something seemed to be amiss regarding movements of physical gold in and out of the New York COMEX markets: “When averaged over a month, the “flow” of metal inventory [in and out of COMEX vaults] should be comparable to the delivery notices issued. This is just basic accounting. But I have observed that reconciliation is almost impossible with the COMEX data. The only explanation I could think of is that settlement of contracts must be bypassing the warehouse. But how could this be possible, as I thought all contracts had to be delivered via a COMEX registered warehouse?” As a possible explanation, Mr. Douglas noted that Exchange Rule 104.36, which governs Exchange of Futures for Physicals („EFP?) transactions on the COMEX “refers to a „physical commodity? as one of the required components of an EFP transaction but also indicates that the physical commodity need only be substantially the economic equivalent of the futures contract being exchanged.”
Exchange Rule 104.36 further states, “The purpose of this Notice is to confirm that the Exchange would accept gold-backed exchange-traded funds („ETF?) shares as the physical commodity component for an EFP transaction involving COMEX gold futures contracts, provided that all elements of a bona fide EFP pursuant to Exchange Rule 104.36 are satisfied.”
The inherent problem in allowing paper GLD contracts to be delivered as the long transaction necessary to balance every short position in gold assumed on the COMEX is that the poor business practices established by the GLD leaves the existence of the physical gold held in the GLD?s Trust in question. We believe that we have established reasonable doubt that the Custodian of the GLD holds all gold it claims in fully allocated and in Good Delivery bar form. Consequently, the delivery of paper contracts that represent the presence of questionable gold should not be allowed to offset short positions taken against gold in the COMEX until this can be proven. Furthermore, when GLD paper contracts are delivered to cancel out short positions assumed in the COMEX futures market, is the gold that represents the GLD paper contracts removed from the Trust?s warehouses as good business practices would dictate?
In our estimation, the US DOJ should carry out a detailed investigation to ensure that the GLD and SLV have not been invented to assist in price suppression schemes against gold and silver. Since the GLD prospectus states that the Custodian maintains a central London vault premise and the GLD 10-K states that all allocated gold is held there, the DOJ should arrange for periodic unannounced investigations of the London vault that does not allow for gold to be transferred into the Trust?s London vault if it is not already there. The DOJ should further not allow for the cover of “English law” to prevent its investigation, for if the existence of allocated Good Delivery bars that have no third party claim cannot be proved, then the GLD should be dissolved.
The GLD provides a bar list that lists each individual bar number, refiner?s name, bar gross weight, fine weight, and assay content. The DOJ should assign an independent auditor that can check the Custodian?s London vault premises, unannounced, as often and as many times as it desires during the course of any year to confirm that the GLD holds London Good Delivery bars, allocated specifically to the Trust and to no third party, and in the amount specified by the GLD?s business filings. If all the gold is allocated as the GLD claims, to only the Trust, then there should be no need to move gold in and out of the London vault premises except for redemption of shares or as “gold” transferred to COMEX warehouses to satisfy long contracts that request delivery. Thus, the amount of gold held within the Trust?s vault should always equal the amount of money that the ETF has collected from investors, sans the gold receivable amount and the normally insignificant amount of unallocated ounces. This is a simple task to prove.
Either the gold is in the Trust?s vaults or it is not, either it is in Good Delivery bar form or it is not, and either it is allocated specifically to the GLD Trust or it is not.
We believe the DOJ needs to establish the credibility of the GLD by investigating the points we raise in this memo and verifying that none of our concerns are founded. The same concerns that apply to the GLD stated in this memo also apply to the silver ETF, the SLV, the custodian of which is JP Morgan. As the DOJ is already investigating JP Morgan for manipulation of the silver markets in the futures markets we believe it is essential for the DOJ to also vet the SLV for each of the problems noted in this memo as well.
Today in America, citizens have very little faith in the regulators to execute their job properly. Industry regulators seem to be more concerned with hobnobbing with and catering to the greed of industry executives rather than ensuring that consumers are properly protected against fraud and criminal activity. The recent BP/Transocean rig disaster in the Gulf of Mexico is another example in which a chronological timeline of events that led to this disaster revealed regulators to be worthless in protecting the consumer, the State, and our nation from an entirely preventable disaster and the greed of corporations. Fines are not the answer. Fines will not prevent a massive loss of incomes and wealth to workers affected by corporate negligence and willful deception. If industry executives are found guilty of criminal activity, extended jail time is the solution. And nothing short of a thorough investigation into the operation of the GLD and SLV to prove that none of the above concerns we stated are founded will restore America’s confidence in the financial industry.
Everything for everyone, nothing for us.
Did you write this to the D of J, Pladizow?
If so BRAVO to you!!! Even if you did not and someone else did, that is a great note.
+ $1820 and green.
No, I cannot claim to be the author.
I dont recall where I got it, but its probable it came from ZH.
Eric Holder isn't going to read such a long letter unless you attach it with millions signatures of illegal immigrants or check written out for millions of dollars.
Don't you know how government in capitalist system works? $1 = 1 vote.
I think you have that exactly backwards. This is how captialism works in a statist system.
Well, there goes the neighborhood...
Fractional reserve Banksters make their living by leveraging other peoples assets. They often get caught doing this when they are explicitly forbidden to do so. What do expect will happen when the custodial requirements are as loosey-goosey as SLV and GLD?? Does anyone think that is accidental? I can tell you it is absolutely NOT accidental. Now ask yourself why it was written that way.
Not only that they are not accidental, they were designed in the same scheme of things as a ponzi, right off the bat.
When the whole thing collapses, they would too. No gold anywhere on the planet.
Ponder that. Not that it matters...
GLD is like a sandbox for grown up children. The children play in the box with nary a thought to who built the box, whether or not the sand is toxic, or if the sand box will be there tomorrow.
The grown up children simply want to play in the sand.
But there is a sign on the box, called a prospectus. If the children lose their financial lives it's their own fault... even if the children can't read, ignorance of the prospectus is no excuse.
I hope the Pan Asia Gold Exchange will build a better sand box.
And, there is the alternative option of owning physical PMs...and avoiding all sand boxes.
As fishy as all this sounds, I have to agree. It was disclosed in the prospectus and investors have chosen to accept (or ignore) these issues.
Scary, but is any of this illegal.
That said, it does sound like the set-up for the greatest heist in history. Between one inspection and the next, billions of dollars of gold are "lost" by a sub-sub-custodian, who is then disbanded and "unfortunately" had no insurance coverage.
"Ocean's Fourteen" perhaps.
Most likely the BOE.
Says right there: HSBC.
...theres yer trouble.
You took the words out of my mouth Roy. I have some money with Eric Sprott, and would be interested in any opinions about his fund. I haven't heard anything bad about Eric, EVER, but why did someone junk you for even asking about the fund? That reaction is very interesting.
I did indeed read the prospectus and have paid attention to these issues. I still do not understand GLD at all. If there is gold backing, there cannot be a run on the gold. I cannot wrap my brain at all around the arbitrage mechanisms (presuming they do buy and sell gold). My conclusion is that you should not assume there is any allocated gold. I also think it may have been invented to absorb demand, not satisfy it.
While I am confessing to ignorance, I don't understand the mandates of the mints either. Supposedly, they are to provide gold to anybody who wants it at the current market rate. If so, how does demand imbalance drive up the price?
My outlandish conclusion in all of this is that they are trying to screw us. [sarcasm off]
Yup, can't argue with you there. All of the inventive new ways to invest in gold seem to have ben designed to siphon off price increasing demand.
Probably a coincidence
I did indeed read the prospectus and have paid attention to these issues. I still do not understand GLD at all. If there is gold backing, there cannot be a run on the gold. I cannot wrap my brain at all around the arbitrage mechanisms (presuming they do buy and sell gold). My conclusion is that you should not assume there is any allocated gold. I also think it may have been invented to absorb demand, not satisfy it.
While I am confessing to ignorance, I don't understand the mandates of the mints either. Supposedly, they are to provide gold to anybody who wants it at the current market rate. If so, how does demand imbalance drive up the price?
My outlandish conclusion in all of this is that they are trying to screw us. [sarcasm off]
GLD exists to siphon off both bullion and mining shares demand. The custodian is the biggest beneficiary.
Yes they are. Read the prospectii. Very much more simple structure than GLD, they are ETN's. Sprott just buys the metal and sits it in a vault (in Canada!!). Eric Sprott it to be trusted imho. He did indeed piss a lot of holders off when he offerred a second shelf, yet has since promised never to price a shelf in either PHYS or PSLV below the previous days NAV.
I'll catch a lot of flak becuase of the premium to NAV on PSLV. Imho, this is representative of the TRUE "price" (in fiat dirty peices of paper printed with green ink) of silver. Also you buy that, and sell (which I won't any time soon).
Additionally, I do not think they can be shorted or optioned there appears to be no short interest. Someone please correct me if I am wrong. This is a BASIC flaw with ETF's and the reason I own none. Those shorts unwind hard and someone get's left holding the bag. Won't be me.
GLD and SLV only good for hedging, again, imho.
Disclosure.......positions in both PHYS and PSLV. No affiliations.
JohnG, @17:47,
Those shorts unwind hard and someone get's left holding the bag. Won't be me.
Yes, your correct if memory serves as you are considered a SHAREHOLDER,you would /could be named as as Co-Owner(or some thing similar,you legally are part owner of the company).
People do not read anything most of the time anymore.
That's right! And when it's reshorted over and over, just HOW MANY claims have been sold???
I don't care if there's a grain of metal in SLV or GLD.
As far as I'm concerned, it a synthetic and just a medium for churning speculation fiat.
Tax is not an issue if you do it in a brokerage IRA.
Lots of options, plenty big volatility and more of a rush than the third base seat at a blackjack table.
Real physical, of course for the long term wealth storage.
You've got it backwards.
PSLV can be shorted, but it's very difficult to find shares to borrow and the juice is prohibitively expensive. Without this arb mechanism, PSLV trades at a rip-off premium to NAV, which has NOTHING to do with the "real price discovery." Sprott purposely keeps the float tight and expensive so he can offload his shares to brainwashed, paranoid goons who think they're buying something significantly different than SLV. So far, the goons have put about $20M in Sprott's pocket over the past few months.
Furthermore, PSLV only trades ~1M shares/day, or ~$19M worth. SLV, on the other hand, trades roughly 37 times as much in volume, and 73 times as much in $$$ (~$1.4B).
If you're looking for better price discovery, SLV is the place to be.
If you want the real truth on PSLV, take a look at Kid Dynamite's blog. If you just want an echo chamber full of doomer nonsense, go to Turd's site and/or SGS's site. Turd's site is slightly more hilarious than SGS's site, because Turd posts 24 hour price predictions which are no different than dart throws, and his readers are too dumb to know the difference - some really funny stuff over there. It's where Wall Street, Sesame Street, Gunsmoke and One Flew over the Cuckoo's Nest all collide into a singular forum.
What an unmitigated load of horse shit.
Regular people can get real metal for their PSLV and PHYS shares. Enough said.
First of all, I never said that Sprott's shares aren't redeemable for the metal. You're arguing a point I never made, which makes you an idiot. However, redemption comes with a huge qualifier, which leads me to my second point.....
.......and this is the part where you clearly demonstrate your ignorance like virtually all of Sprott's goons: "regular people" cannot redeem their PSLV units for physical. The minimum redemption request is 10 London Bars, and each London Bar has between 750 ounces and 1100 ounces of silver in them.
If silver is currently at ~$41, that would mean the minimum redemption request is ~$307,500. So, NO!, regular people CANNOT redeem their units for physical, unless you think "regular people" are those with several hundred thousand dollars invested in silver. These restrictions are nearly identical to SLV.
Your ignorance is EXACTLY what I've come to expect from the Sprott lemmings. The doomer crowd is all about disinformation, ignorance, myth, conspiracy, paranoia and carnival barking. And I don't fault Sprott in the slightest for taking you goons to the cleaners.
"If silver is currently at ~$41, that would mean the minimum redemption request is ~$307,500. So, NO!, regular people CANNOT redeem their units for physical, unless you think "regular people" are those with several hundred thousand dollars invested in silver."
So, your only "regular" if you have less than that? That's a stretch right there 'tard. You might try to think outside your little (very small apparently) box just a little. Or are you afraid to think for yourself? It's OK, lot's of people are afraid to fo that. They shouldn't be.
Think for yourself.
you have no fucking clue what you're talking about - just like all the other doomer goons.
Really. Is that all you have, hate? Someone has a different opinion and you turn to personal attacks.
A sign of true genius in action.
I am suitably "awed" by your majesty.
(Can I haz my cookie pleaze?)
Libertarians for @ 20:05,
WHO are you responding to?..........When your post is coming to the bottom(why they do is a mystery to me),should go under the post being repiled to,that way we all know who is being addressed.Or do as I do, and there is no doubt.
IF this is in response to anything I posted advise, as I do not have a clue what hell you are talking about(if it's directed to me).
Regular people can have $307,500 invested in silver.
Regular people can be well off.Just because you have some wealth doesn't mean you cannot be a regular person.But,I get your drift either way.
IF this was directed to me.......advise I have something to SAY to you about it.
tail risk, bitchez
Paper asset tracking the gold price, generating paper profits/losses with no relative tax benefit, bitchez!!
Doesn't quite have the same ring to it.
?
Chinese "Solid Gold" Olympic mascots begin to rust!
http://www.telegraph.co.uk/news/worldnews/asia/china/8732854/Chinese-solid-gold-Olympic-mascots-begin-to-rust.html
I's gots to get me some o'dat paper gold. Unlike phys, you can eat it. It is much lighter and does not cause unsightly ""pocket bulge". I love counterparty risk so I can lose all my money.
agreed...often i am asked "are those krugerrands in your pocket or are you just happy to see me?"
embarrassing
LMFAO
Kruggerands? geez, they ask me if I have a 400 oz gold bar in my pocket, but I always answer, "no, it's silver!"
Holding physical is SUCH an oppressive burden - Oh the effort!
Somebody, please save me. . .
Fixed it for ya. No charge either.
I read it as 1,230 tons of paper claiming it IS gold. Thats a lot of paper, but I can see where it might take that much paper to convince morons that it IS REAL gold.
Hey, if you want me to take a dump in a box and mark it GOLD, I will. I got spare time.
After your finished polishing, apply two coats of Krylon 2906 Outdoor Spray Paint Gold Metal.
I'd be curious to add up all the tonage people supposedly have and see if it even makes sense. I wouldn't be surprised if it exceeded the amount ever mined.
I cannot answer that with authority, but a number of times I have seen the figure of about 6 billion ounces of physical gold are in existence. Almost 1 oz / capita (world).
The rule of thumb I have passed along is that an American has perhaps an average of 10 x the disposable wealth of the average world inhabitant. And so should have some 10 oz. If you are in a family of three, then you (your family) should have 30 oz.
Yet, how many people have investment, physical gold here? 1% - 3% are the numbers I see the most.
Got your share?
Chet... James Turk, who knows a bit about PMs, has done serious research on gold quantity and gold flows around the world and can make no sense of the numbers.
To say that soverigns and individuals keep their gold inventories and trades secret would be a huge understatement imo.
For instance it isn't unusual for soverigns to announce large increases in the amount of gold they hold... Saudi Arabia recently announced that they 'found' 348 tons of gold that they 'didn't know they had'. And China recently announced that they were shifting over 1,000 tons of gold from their soverign wealth fund to their central bank.
It has been said that gold holdings are more secret than nuclear weapons capability...and I believe this to be true.
If one doesn't believe this then they can ask the U.S. Treasury for an inventory and audit of US gold holdings... let me know how this works out.
CD,@16:40,
I do not get it, the bottom line is THEY will (have the option) of cashing you out.
So, in essence,they in the REAL world can,and do not have to hold ONE REAL OUNCE of Bullion.NONE
Since the Upper echelon dudes are not allowed into SAID vault, their is a reason WHY. 2+2=5
This is a rigged game, and short term players are the only chance to win.
My $ is they own no gold, period.( they do not have to, it's in your contract buddy).
Another wild assed Ponzi scheme.Just like the other depositories, that claim you can take delivery, and pay super low prems.
YES you can, but try and take physical,your butt is nailed w/ a 20% of NAV of you total investment in Gold.Or, take cash.................
Which one you going to take?.(and this little charade is pulled by one of the more respected Vaulting firms.).
The Sprott Funds are the only one's that allow you to do so in reality(within certain quantities),I believe 400oz bars for Gold.(Silver I am not sure.)
Like we have said here a Zillion times, want Gold & Silver, take delivery in person, or you do not own it.
The writer does not tell you what constitutes LONG term, it's anything over 12 mos.After that 28% bros,under 12 mos,(Short Term) your std rate of taxation applies.
That's exactly what i was thinking, if they can always settle in cash, what need do they have to have actual physical?
Actually, the author of this piece, like most others who comment on PM taxation by the IRS, gets it wrong. Gold is only taxed at a MAXIMUM of 28%, NOT at an absolute 28% --- the actual rate is dependent on one's level of income. For those in the lower tax brackets, the tax on their PM capital gains is (currently) no greater than the tax on their general income.
Ah yes, buying the "idea" of holding gold while making paper pushing fucknuts rich. No thanks, got physical?
Gold. Mother's milk of the Gods.
If it's not pasturized the Feds will come and take it at gun point. Just ask Rawsome.
LOL, sure they will. From who? What gold? I see no gold here. Nothing here but us trolls. I promise. Now step into this back room for a second. thump!
I kinda like just plain old milk myself. 1.99 at BJ's for a gallon in case you're wonderin'. What is it in goldville?
GLD seems a good vessel for punishing "goldbugs"
Actually, that would be Monsanto's job. Of course, everything else in proximity would also be killed.
Scary thought. GMO gld
GLD seems a good vessel for punishing "goldbugs"
The only paper I touch is pslv & phys, metal to back the paper. That said I take the profits from trades and turn it in to the PHYZZ. (bitches)
No mention of PHYS?
Sprott Physical Gold Trust15.95
Dupe
I still don't understand how each share can track 1/10th oz of gold.
Don't try to understand it, just avoid it like the plague.
It's simple,Ghandhi.
Here's how it works: "Send us your money, and we will tell you what your shares are worth." :)
well they can buy and sell futures or other derivatives, and also the basic price of the shares will rise or fall depending upon some notion of NAV
GLD is good for some pocket change..
but security comes in 400 oz good delivery bars..
Ever since I discovered the China Tungsten company I don't trust good delivery bars. Small pieces like sovereigns are much harder to fake. Gold wire like the Sahara nomads use would be the best protection against tungsten, but I don't know where to get it.
I was actually having this idea. Going to China and setting up a company making Gold plated tungsten bars then selling these ;- ) Also producing some fake dragon 1oz coins would be quite profitable ^^
Does anyone know where to buy this kind of machine which checks the speed of sound in your Gold bar? Because thats the way to test whether there is tungsten inside (other than melting the bar) or not.
Check out this one, Chinese Coin / bullion counterfit operation
http://www.youtube.com/watch?v=plkYmX2tde0
http://en.wikipedia.org/wiki/Tricorder
Well, not exactly what I meant. SOme machine just checking the speed of sound in the Gold bar. I ve seen it before in a video. http://www.aurotest.de/welcome.htm this one. where to buy it?
Hehe, cool, they also sell Gold plated tungsten bars for "test" purposes. I will order one of these
Some sort of xray technology is used as opposed to drilling and assaying....xray chromatography??? Anyone know?
Go to http://www.aurotest.de/welcome.htm then choose "Produkte" on the left side. Speed of sound and electrical test.
They have English as well on the left side. Just look around. Great find.
http://www.google.com/#sclient=psy&hl=en&source=hp&q=test+gold+electroni...
From the website, their USA distributor:
Future Digital Scientific Co.
www.fdsc.com
Tel: 516 349 0663
Looks expensive...
@ unky, great find, I just put that info (as well as the US distributor) there at my blog.
Anyone interested in my blog pls gmail me at my name above for a link, I do this as I write under my actual name.
Going Loco,@17:21,
Buy OLDER dated Bullion coins....................not NEW one's, unless DIRECTLY from their Mint to dealers.
Hard to dup 1oz oins w/older dates and some small blems/wear.
Go to the Sahara, find a Nomad, and ask him.
http://www.ccsilver.com/gold/gw99991.html
I like the wire idea.
I'd work up the premium cost but I've got too much ethanol in me to be trusted.... see above thread about unemployment, depression, etc.
Ummmm, looks like a pennyweight = 1/20 of a troy oz. That makes Au wire $2000/ozt which compares somewhat favorably to the cost of a 1/10 ounce coin.
YMMV.
(hic)
Who pays taxes on any Gold gains is stupid. As long as anonymous buying and selling of physical Gold is allowed, people will do it (Lets say your government asks dealers to show your ID for transactions of more than X, so you just make many transactions with smaller units (1/10 oz) and you will never be registered anywhere)
Agreed! And "stupid" is in a bubble market.
You mean the taxes paid are stupid and in dollars and the dollar (treasury) is the greatest bubble of all times. Agreed.
We dont need taxes anyway when the government can just print the deficit anyway.
unky, @16:51,
Sounds GOOD in theory,but by the time you figure the PREMS you pay on smaller coins,(1/10th oz, usually 8-10%) you will have paid more than if you paid cap gains.If you plan on buying enough to really protect your wealth.
Well, thats why you have 1oz silver coins for example (my dealer doesnt have 10% premium on 1/10 oz Gold by the way)