huskerbob

China's Latest Hunting Trip

Mr. Mad H F T: I am just adding a qualifier to your mention of the GLD purchase: no one can be certain that GLD actually purchased any physical gold. Of course they say they did, but their prospectus makes it clear that neither they nor anyone else will ever have any clue as to how much gold is actually being held by GLD.

“The Custodian is required to use reasonable care in selecting subcustodians, but otherwise has no responsibility in relation to the subcustodians appointed by it, and the Custodian is not responsible for their selection of further subcustodians. The Custodian does not undertake to monitor the performance by subcustodians of their custody functions or their selection of additional subcustodians. The Custodian is not responsible for the actions or inactions of subcustodians” (p. 44)

“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.” (p.37)

To make matters worse, the Prospectus states that there will be no written contractual agreements between subcustodians and the Custodian or the Trustee (page 11-12). The Prospectus further states quite clearly that “because neither the Trustee nor the Custodian oversees or monitors the activities of subcustodians who may hold the Trust’s gold, failure by the subcustodians to exercise due care in the safekeeping of the Trust’s gold could result in a loss to the Trust.” (p. 12)." “Custodian and the Trustee will not require any direct or indirect subcustodians to be insured or bonded” with respect to gold held by the subcustodians on behalf of the Trust (p. 11)."
Thanks to Dave Kranzler for picking out these gems.

Gold: The Next Reserve Currency Player

Dr. Jackpot: They have piles of oil now. Is it like living on a desert island with "no food and no way to get off"?
You may find this suprising, but some people will accept gold in exchange for currency, food, farmland, machinery, etc. You can exchange gold for lots of useful things. Maybe even an airplane to fly you out of the desert! So no need to worry about the Saudi's sitting on their piles of gold.
Nikhil- a comment from James Turk will help explain why many people worry that GLD exists only to soak up money that would otherwise support the physical gold market: "Thus, for example, when GLD adds a gold bar, there is no assurance that the gold bar really exists unless it is in the vault of the custodian, HSBC. But the prospectus discloses that HSBC uses subcustodians and even sub-subcustodians, and what's worse, "the Custodian is not liable for the acts or omissions of its subcustodians". In other words, if the subcustodian does not have the gold, GLD "Shareholders cannot be assured that the Trustee will be able to recover damages from subcustodians...for any losses relating to the safekeeping of gold by such subcustodian". This means that "Because neither the Trustee nor the Custodian oversees or monitors the activities of subcustodians who may hold the Trust's gold, failure by the subcustodians to exercise due care in the safekeeping of the Trust's gold could result in a loss to the Trust." To be blunt, these disclosures mean that there is no certainty that the gold supposedly owned by GLD really exists. After all, if there was complete certainty that the gold did exist, the objective of GLD would be to provide investors with the opportunity to own gold bullion by investing in shares of an ETF, rather than its stated objective to just track the price of gold."

ECB Calls Bernanke's Bluff

I wish we could go back to the original definition of "inflation": an increase in the money supply. Then it would be obvious to all consumers that prices are affected by debasing the currency.
"There are significant upside risks for inflation through commodities,” would become "there is significant upside potential for commodity prices", which is none of Bernanke's business. He would be reduced to discussing the "significant upside risks for inflation through" our inflationary monetary policy! It is annoying to constantly read about inflation in commodities, when the weakened dollar is a huge culprit. Many people ascribe their loss of purchasing power to inflation in commodities, not the other way around. They have trouble connecting $4 gas to an "expansionary monetary policy". Whatever works for the fed.
As far as Bernanke is concerned, he has already detailed his distaste for savings and preference for inflation. According to him, the only question is what rate to inflate at. Don't expect much more than a pause in the dollar's slide anytime soon!