Hedged In

Not All Gold ETFs Are Created Equal

I've posted the relevant section from the prospectus on my instablog here:

Hidden Risks in the Gold ETF GLD
seekingalpha.com/insta...


On May 27 02:24 PM Ken P wrote:

> GTU and CEF buy gold and store it in a vault and sell shares based
> on their gold holdings. That's pretty much it. They don't loan the
> gold to anyone or buy options to buy gold. They just buy gold (and
> silver also in the case of CEF) and sell an interest in the holdings.
>
>
> If you read the prospectus for GLD you will see a different story.
> They claim to have a certain amount of cold, but nobody can audit
> it because they hide behind a web of custodians and sub-custodians,
> none of whom ultimately have to show that they have the gold they
> claim to have. There is no prohibition against leasing out the gold,
> but you don't participate in any gains from the leasing. You do
> however participate in the losses if someone defaults and you don't
> get the gold back that you leased. Also you can short sell GLD which
> means there are really more shares outstanding than have actually
> been issued. Also the ability to short GLD just tends to depress
> the price of gold. It's really a mess. If your goal is to own gold
> because you don't trust where the economy is heading and you want
> capital preservation, then GLD or any of these other products is
> NOT the the thing to own. They are just more of the same derivative
> products that got us into this mess in the first place. Don't take
> my word for it. Do some research. At the very least read the GLD
> or whatever prospectus before investing and try to read between the
> lines of what they are saying.