Riding the Gold and Silver Uptrend with ETFs

As I mentioned earlier, gold has had a tremendous run lately. The main force behind the gold rally is the deterioration of economies around world. Despite the passage of the $789 billion economic stimulus package over the weekend, gold price has continued to climb since the holiday.

Currently, spot gold is traded at $967 an ounce, up more than $10 from last Friday’s close, breaking the key $950/ounce level. That’s the seven-month high for gold. Also, major stock benchmarks are likely to test the November lows amid jitters in the financial sector.

Even though there are predictions that gold could back fall after the stimulus plan became a law, that hasn’t happened. In contrast, investors are increasing their holdings of gold as a safe haven to preserve their wealth while the stock market continues to decline. Right now, gold is trading well above its 50- and 200-day moving averages, a clear indication of the uptrend of gold. (click to enlarge)

Investors’ appetite for physical gold, such as bars and coins, has driven up share prices of exchange-traded funds (ETFs) specializing in precious metal as well. For instance, take a look at SPDR Gold Trust Shares (GLD), the world’s largest gold-backed ETF. GLD gained 3% in 2008 and 6.9% so far in 2009.

The reason investors are also chasing GLD is that it offers investors an easy way to invest in the bullion without having to hold the metal themselves (you will have many more things to consider, such as storage and insurance, if you want to hold physical gold yourself). If you invest in GLD instead, your investment will reflect directly the price of gold because GLD’s share price is determined based on 1/10th of an ounce of gold. SPDR Gold Trust buys and stores physical gold to back GLD prices. In fact by tracking holdings of SPDR Gold Trust, you can get a sense of the demand for gold. Currently holding 985.86 tonnes of gold, a record level for GLD, the indication is that demand is strong.

If you are interested in investing in precious metal ETFs, check out these funds in gold and silver:

• SPDR Gold Shares
• iShares COMEX Gold Trust (IAU)
• Market Vectors Gold Miners ETF (GDX)
• PowerShares DB Gold (DGL)
• iShares Silver Trust (SLV)
• PowerShares DB Gold Double Long ETN (DGP)
• PowerShares DB Precious Metals (DBP)
• PowerShares DB Silver (DBS)

Among them, GLD has the largest daily trading volume according to Morningstar data, followed GDX and SLV. Remember, volume matters when trading an ETF. Not only because of the bid/ask spread, but also for the survival of the fund.

Stock chart from INO Stock Analysis

Comments

[HonestMoney:]

Are GLD and SLV a Ponzi scheme??

jsmineset.com/index.ph.../

Dear CIGAs,

Don’t you think it is about time GLD and all the other popular international gold ETFs told its owners exactly what kind of gold they claim to own?

Can you imagine a situation where a person buys a gold ETF to own “non-gold” but finds out that they in reality own OTC derivatives on gold? That would be an investment in the same type of financial instrument (not gold) that one owns gold bullion to protect against.

The failure to unearth the Madoff scandal becomes incredible when one understands that the returns from the market claimed on the size of the hedge fund were logically impossible.

The exact same reasoning screams bloody murder when applied to the many Gold EFTs in terms of what it is they really own.

This begs one major question: From where did all the gold claimed to be owned by all the gold ETFs come from?

Where did funds such as GLD get their additional 45 tons in the last month?

We certainly can forget about that gold coming from the Comex. 12 deliveries would stand out like a sore thumb.

This concept and record keeping eliminates all exchanges around the globe as the source of bullion delivery in any size to all Gold ETFs.

The physical market is so tight that coin minting has all but closed down compared to what it was one year ago. It is hard to accept that the Gold EFTs can buy what the mints can’t.

A read of the original prospectus removes any thought that the gold is leased, but leaves one to invite probability.

That probability is that the claimed gold can only be OTC derivative long positions. If that is so then the financial reliability of the paper stands on the foundation of the balance sheet of the granting counter party to the OTC derivative. This is true regardless of whether it is a mine or naked speculator.

Don’t you think it is about time the gold ETFs told their owners exactly what kind of gold it is that they claim to own?

Can you imagine a situation where a person buys a gold ETF to own “non-gold” but finds out that they in reality own OTC derivatives on gold? That would be an investment in the same type of financial instrument (not gold) that one owns gold bullion to protect against.

I think you own an ETF of derivatives, not of gold!

If I am correct then there is no clearinghouse guarantee for the OTC derivative to function.

Like so many other surprises of the last two years the Gold ETF shareholder may actually have no gold at all.

A perfect Ponzi scheme would allow you to surrender shares for bullion. You need only think about it.
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jsmineset.com/index.ph.../

Dear CIGAs,

We all are pressed for time here because of the press of both corporate responsibilities and our desire to help you all through trying times safely.

As we begin to see the many ETFs for gold from all over the globe, our curiosity peaks. It simply looks impossible that all these enterprises are anything but paper tigers operating primarily in OTC derivatives, even if in some cases this is contra to their stated purposes.

It would be extremely helpful if any of you dealing with or familiar with the far flung world of ETFs would send us the latest reported levels of gold holdings, sourced with the name and exchange upon which the fund is trading. Alternatively, if you have proof ETFs are trading only paper, that information would be useful as well. All help would be deeply appreciated. Please provide sources!

Please email replies to Editor Dan at [e-mail].

Thank you all for your help,
Jim

Feb 18 05:10 AM

[ROLEXDAYTONA:]

Most ETF's are Ponzi scheme, with SLV and GLD being the biggest.

Feb 18 10:54 AM

[AndrewBaker:]

There is a UK ETF provider called ETF Securities where the presious metals, including gold, are backed by the physical security held by a custodian. Personally, I trade ETF regardless of whether the underlying physical asset is backed by a real holding, but I understand those who want the security of knowing they are invested in a real commodity and not a future or derivitive. Each to their own, and good luck to all.

Feb 18 01:45 PM