Additional Thoughts on GLD 23 comments
July 19, 2009
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So I wrote this piece a few days ago as soon as I read that Einhorn swapped his GLD for physical bullion, anticipating that it would bring out more cries about how the GLD is a scam. Not but a few hours later, SeekingAlpha published an article from J.S. Kim where he explained his skepticism about the GLD and SLV products. There are a plethora of comments, some explaining why he's incorrect, and some thanking him for illuminating the problems. SeekingAlpha publishes my posts too, and my GLD post generated some discussion/debate in the comments section.
I realized there is no reason for me to waste any more time arguing about the validity of the products, as I can sum it up simply. Some people prefer GLD, some people think you need to own physical gold. I left the following comment on both my own post, and Kim's:
I realized there is no reason for me to waste any more time arguing about the validity of the products, as I can sum it up simply. Some people prefer GLD, some people think you need to own physical gold. I left the following comment on both my own post, and Kim's:
When you buy physical gold, you can get ripped off - right? whatever chance there is - someone could send me a brass bar plated in 24k gold - I'd have no friggin' clue. do you have a machine at home that verifies the gold you're buying is real gold?
Bottom line for ME, is that I think the chance of being ripped off by the GLD is much lower than the chance of being ripped off buying physical gold bars (not to mention GLD is much easier to trade.).
if the GLD trust gets sold to FlyByNight Securities, and they moved the gold to a warehouse in Secaucus, then the story/risk would change.
'nuff said.
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nuff said
ETFs have made the commodities more worthwhile. I never would have dealt with physical gold--too inconvenient. Yet, I have traded in and out of GLD a few times for a modest profit.
If GLD turns out to be a fraud, it will reduce interest in GLD obviously, and by proxy, it will put gold back where it was before for the retail investor--an inconvenient trade with premiums coming and going. That can't be good for gold.
The result would be a very, very expensive and somewhat valuable, though very limited, $1,000 fraud. It's perhaps easier to get out and mine it.
Gathering one thousand tons of real gold requires a few lawyers from a good firm, some accountants and the ability to print and distribute an attractive but complex and inscrutable document to the public. The result is a trillion dollar asset that can spawn a blizzard of entirely legal derivatives which, ultimately, may leave the ownership of the asset in doubt.
Only an alchemist would attempt the first venture and after several centuries of attempt that profession has died away. Given the difficulty of getting a share of gold delivered (unless I have $1B invested) and the recent history of leveraged finance I'll put my faith in high school chemistry and a reliable coin shop.
Perhaps Einhorn had some such things in mind when he called for his delivery of gold, perhaps not. His timing suggests something changed in his thinking between initial purchase and delivery.
What motivated you to spout forth on this subject - not once, but now twice?
You haven't added information to the debate over the opaque GLD in any way; you haven't offered a critique of those, like the very experienced James Turk, who have published very well-researched concerns; you've merely waffled about personal preferences.
Finally; you've demonstrated that you know absolutely nothing about gold by, proudly, admitting that you couldn't even tell the difference between gold and gilded brass. [Here's a clue; gold is getting-on twice the density of lead - over two-and-a-half times that of brass...]
there is nothing to even debate in this post - you're right - if you don't have the gold in your hand, you don't 100% know that you will get it. I happen to not care, and I fully understand that Einhorn's redemption of GLD for bullion is a VALIDATION of GLD - because it WORKS - not a condemnation of it.
There are risks in everything everyone trades in the market - which includes buying physical gold.
On Jul 19 12:15 PM Screwloose wrote:
> Kid
>
> What motivated you to spout forth on this subject - not once, but
> now twice?
the hilarious thing about Turk's firm is that they don't actually send you gold right (although they offer that option - for an additional fat fee of course)? They set it up so that you own it in a vault... JUST LIKE THE GLD! It shocks me that people would trust that system more than they'd trust the GLD - but hey - that's your prerogative.
I assume GLD must be an allocated investment. Even so, it's all based on trust and integrity.
www.kitcomm.com/showth...
CEF if you have any doubts about SLV. The Central Fund of Canada - www.centralfund.com/
With outstanding choices like these two, WHY FEED THE MONSTERS??
Yes, I did know James Turk is a gold, silver and platinum dealer - Goldmoney has taken a serious wedge of money off me in commissions. [You'll now tell me that my reserved bars in Via-Mat Zurich are no safer than the unallocated GLD...]
By all means, go ahead and educate us; but try using hard facts and referenced argument. Simply stating your opinion that you personally happen to think GLD is sound, only works if you are a respected and knowledgeable authority on PM investing. Admitting that you can't tell gold from brass kinda undermines your credibility on that front.
You now say that you know for sure that Einhorn redeemed his GLD - or is the crux of your argument still an assumption on your part?
[I'll now put my tinfoil hat back on and continue assembling this IED...]
as for creations and redemptions - i know for a fact, not my opinion, that GLD can be created and redeemed - colleagues of mine have done it. I have not spoken with Einhorn about his switch.
Was Einhorn just deciding that he could store, insure and guard his gold stash cheaper than GLD's .4% expense ratio?
And, repeating myself here: if (God forbid) markets collapse to the point where you can't sell your GLD, you probably won't be able to find much food, water or fuel to buy with your physical gold either.
there is a risk we have a global financial breakdown. there is a risk you could own GLD shares that you wouldn't be able to sell temporarily. There is a risk that the entire GLD structure is a scam set up for the evil wall street banks to steal from the poor main street man. There is a risk that if you had physical gold you wouldn't be able to sell it. There is a risk that if you have someone else holding your physical gold for you in a vault somewhere that you get ripped off. There is a risk that your physical gold turns out to be not as pure as you thought it was. there are risks everywhere.
My point in this post was to state that IN MY OPINION, it's clear that the risks of owning GLD are lower than the risks of transacting in gold for other methods. This is also because although I may want gold exposure for a number of years, I don't expect this to be something i pass down to my grandchildren. Also, I would trust State Street and HSBC to watch my gold for me in their GLD trust before i trusted James Turk or anyone else to oversee the process for me - nothing against Turk. If you're going to be a member of the "GLD sucks" camp, PLEASE don't tell me you don't actually have gold in a form that you can touch (like an account with some online gold dealer)
if you really believe that global financial thermonuclear war is imminent, you should buy bottled water and canned food (and guns of course) - not gold bullion or GLD.
Having never owned GLD, I've never tried to redeem gold from them - seems an odd way to acquire physical for those, doubtless few, that have.
Unlike Goldmoney and Bullionvault; with ETFs you are an unsecured creditor of a trust; you have no rights against any of the trusts assets.
If that trust has "mostly" invested in physical - but, when the markets come under strain, runs into trouble with the other [49%?] portion of it's [futures?] holdings; then someone, somewhere, isn't going to get what they expected.