Posted below is a copy of a report I published in February 2008 which outlines all the problems with using GLD as an investment in gold and why, ultimately, GLD has the potential to implode in the same manner as the many Wall Street Ponzi schemes before it - especially dating back to Greenspan's efforts at reinflating the system after the technologly/internet stock collapse and the vaporization of Enron.
For the record, I would like to state that based on the large number of financial advisors I meet with who believe that investing in GLD is the best way to invest in gold, it is apparent that the majority of so-called "experts" have no clue what they are doing with respect to the precious metals markets (most other areas as well). This being the case, the people who place trust in their advisor are not only going to miss out on what is turning into a bull market of historic size and significance, but they actually suffer unnecessary losses in this sector from financial advisor incompetence.
Judging from some of the comments on my post from yesterday, I'm sure there will be plenty of people who read this and throw out pejorative descriptions like "tin-foil hat conspiracy theory" or "goldbug nutjob." I don't have any problems with people speaking their minds. However, my research piece is in no way original or unique and several well-regarded gold market analysts, starting with the esteemed James Turk, have published similar well-researched and analytic disembowelments of GLD.
To be sure, I have no qualms with anyone using GLD to index the price movement of gold for purposes of short term trading or hedging. But the majority of GLD investors have been suckered into GLD thinking that is it the same as investing in gold bullion. It most unequivocally is not. And to all who want to place faith that the architects of GLD's prospectus and the operators and custodians of the trust have nothing but the best intentions in mind, keep in mind that plenty of people exist who still are convinced that O.J. is innocent.
GLD -
And one more point: in my view it is completely up to the Trustee and Sponser of GLD to put all controversy to rest by acknowledging all the legal holes in the Prospectus and engaging an independent auditor and assayer to verify that EVERYTHING the Trustee reports as being held in the trust is actually being held in the trust. Short of going through that exercise, their continued silence only strengthens the case against GLD.
Wednesday, December 2, 2009
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Dave,
ReplyDeleteI had read the copy you emailed me already, but thanks for the complete posting. You are doing good work here and I appreciate it.
If I read Jesse correct tonight, he was taking a bit off the table on gold. Nothing I am looking at says lighten up as yet (just on trading postions not core holdings), but I was wondering your take?
Thanks for the feedback, gyc - kudos as well to your blog.
ReplyDeleteIn terms of Jesse's post, and knowing a little about how he manages his positions, he is probably doing something along the lines of what Sinclair recommends, which is keep a core position, sell 1/3 on "rhino horn" rallies and reload that 1/3 on "fishing line" pullbacks. That's great money management advice.
As for what is occurring right now, I've had this discussion with several people this week in terms of where we go from here. No idea. Based on all the usual technical indicators, the gold market is due for a correction. Maybe a big correction. But I can think of many reasons why we won't get the typical "rhino horn/fishing line" action. Foremost is the ongoing massive accumulation of physical. The paper shorts are screwed. We had a big $50 drop last Thurs/Fri and the market bounced right back. Historically, that action is usually followed with several days of harrowing declines and then 18 months of sideways consolidation. Is that coming? Dunno. Apparently the eastern hemisphere countries were buying that selloff with both hands, feet, and their mouths.
My best idea would be to keep your positions and maybe tighten your stops on part of your position. We could easily consolidate sideways for a while and relieve the "overbought" condition. In the meantime many of the juniors will start "popping up" like popcorn.
If you raise cash and we get a pullback, I would reload aggressively with high quality juniors and explorers. I'll be featuring research posts on a few over the next month. Hope that helps.
One more point. The physical market is getting very very tight. I bought some boxes of silver eagles from Tulving this afternoon and I've NEVER seen their bullion inventory as wiped out as it is now. I was shocked. I checked a few other places like Apmex and CNI and they are getting picked clean as well.
ReplyDeleteThis conidition will be relieved somewhat when the various country mints start running batches of 2010 coins, but it will be interesting to see how quickly that stuff gets snapped up.
The guy who sends in a report on global gold trading activity has been linking commentary from UK bullion banks who are talking about how little scrap gold has surfaced on this run-up in price vs. last winter, when scrap was falling out of trees and it created oversupply and price decline. We don't have that now.
If you are worried about a correction but also worried that this time the BIG ONE might happen, take some profits on miners and buy more bullion. Eventually it will take much much higher prices to bring out bullion sellers. And what happens when the 1-2% of Americans who are buying gold/silver and who "get it" turn into 5-10% of the country?
test
ReplyDeleteJim Willie from the Golden Jackass
ReplyDeleteIn an open manner, no longer hidden from view, the COMEX is settling gold long futures contracts with Street Tracks GLD shares. Investors in GLD shares should be horrified at shareholder contamination. Clearly, the COMEX does not have much of any gold bullion, yet it operates formally as an exchange to sell gold, and to create a market for gold price discovery. Some call this new redemption developed appropriately a silent COMEX default, and correctly so. It is the early chapter of a COMEX default, presaged last May.
The two-sided fraud deserves mention once more. In time, the Street Tracks GLD (run by State Street, with JPMorgan as custodian) will be exposed as totally corrupt. They are using GLD shares openly now to cover COMEX short futures contracts. They are likely providing GLD bullion to London to satisfy futures contract delivery demands. Evidence painted a picture after London gold delivery stresses occurred at the same time as vast deletions from the GLD bar list, which suddenly reappeared days later. That is burning the candle at both ends of the GLD itself. Eventually my expectation is for GLD shares to sell at a 40% discount to gold price as the lack of gold inventory is revealed. Then later, after lawsuits, the GLD might easily sell at 80% discount. Finally the climax could be prosecution for fraud and all investors will be given 20 cents per dollar versus gold. Who knows? Maybe it will be 30% and 60% and 40 cents per dollar. The trouble for hapless unsuspecting investors is they did not read the prospectus, which permits such misuse of GLD shares. They just might be lazy and qualified sheeple. The Wall Street crowd did effective planning. One must give a tip of the hat to their brain trust. The GLD is a tool to drain gold demand from the public and to supply it to the syndicate. It is one of the most brilliant open ploys in financial history.
@Anonymous: thanks for reminding me to read the latest Willie.
ReplyDeleteThe Sponser/Trustee of GLD could dispel all doubt by hiring a completely independent auditor and bar assayer to go in and count and test the bars and match them against the inventory report. Why don't they do this and prove the critics wrong?
Dave, thanks for the great commentary and great blog.
ReplyDeleteU6: appreciate the feedback!
ReplyDelete"And what happens when the 1-2% of Americans who are buying gold/silver and who "get it" turn into 5-10% of the country?"
ReplyDeleteThere will eventually come a time where you won't even be able to obtain bullion (unless at a steeeeeeep premium). My best guess is that the majority of the general public won't even participate in this bull. When they're in the breadlines, they sure as hell won't be giving a damn about buying triple-digit silver or gold at $5k/oz. or some dumb precious metal ETF.
BTW, Broncos -4 looks like a lay up.
Dave and Rodd,
ReplyDeleteBroncos getting 4 vs Chiefs???!? Ill take that one to the bank!
As far as John Paulson is concerned I would bet $'s to donuts that:
ReplyDelete1. the $250 m he is investing comes from the fees, commissions and bonuses on the fund and not one cent of that money is his.
2. The reason he is putting his money in is to disguise the withdrawals that are taking place on the physical because the COMEX are using them as a gold reserve. It would look real funny if the gold popped up in price and GLD showed a massive fall in investors - enter John Paulson.
3. I would bet GSacs and JP Morgan "managed clients are going to get a "healthy exposure"to Paulson's fund.
You are far to charitable to think that Paulson is stupid, think crooked and will get a better take on the man.
@Anonymous: For sure I have thought about what kind of angle of corruption Paulson may be involved in, especially after he his huge, retarded investments in BAC and C. But I think his gold thing is about using GLD to index gold. The mission of his gold fund is to use derivatives to outperform the rate of return on gold.
ReplyDeleteThere are plenty of really bright people who don't get the fiat currency vs. gold issues. I think Paulson is one of those.
love to hear your previoulys referenced thoughts on GXDJ (and any juniors in particular) when you get a chance.
ReplyDeleteSri Lanka bought IMF gold at $1,166/oz.
ReplyDeleteDoes SGOL solve the problems of GLD?
ReplyDeleteThe sheeple are not as dumb as many people think... I've been buying Silver trinkets at Sale prices (whenever a local company is going under/having a sale etc) since 2000
ReplyDeleteMy engagement ring, wedding ring and that of my bride (apart from the 18ct Gold, Rhodium plated diamond solitaire engagement ring I bought in the teeth of the recession back in 2004) which have all multiplied in value - and the watches, necklaces, bracelets et-al.
I suspect the cheap prices of Gold and Silver over the decade from 1990-2000 will mean there's far more PM's in bedside cabinets, and drawers that is still there to be re-cycled if the price is right, and the kids are fighting over the relics of their parents house when the last of them shuffles off this mortal coil.
But between 1947 and 1963 - 75 million+ Americans were born. Add in a further 7-10million who were born outside the country, but moved there shortly after birth, and a similar number of Europeans, who are ALL retiring between 2012 and 2030, the downward pressure on the stock market is relentless as they sell off their pension pots and buy Bonds.
This means also they move out of the labour market causing shortages in experienced staff, and perhaps lowering output. Couple that with Helicopter Ben's relentless pursuit of "low inflation" (in the 2%-3% range) will inevitably lead to price conflation with the amount of gold/silver and the number of dollars in circulation.
W.