Owen

SPDR GLD ETF Unloads 79 Tons of Gold - Should Investors Follow Suit?

Why the rush, Diamond Lou? Wait eight weeks and make gold sellers pay you to take the stuff off their hands!

SPDR GLD ETF Unloads 79 Tons of Gold - Should Investors Follow Suit?

The GLD ETF has no discretion as to its purchases and sales of physical gold. Whenever new investors in the fund bring in physical gold in return for Creation Units of the fund, their inventory grows, and when investors redeem shares for the physical commodity, inventories shrink, as they have recently. In fact, StreetTRACKS Gold Trust ETF ("GLD") doesn't really buy or sell gold; all they're allowed to do is exchange gold for Creation Units, or blocks of 100,000 shares of the ETF. (If this surprises you, it is only because you've never read a prospectus of an ETF--any ETF!)

In recent weeks, a local shortage at some jewelers created a small discrepancy between the price of gold on the commodities exchanges and the price at physical gold distributors, e.g. coin dealers. James Conrad, here on Seeking Alpha, quickly came up with a major conspiracy theory claiming all non-physical gold is fake, and precious metal exchanges are one big scam.

Arbitrageurs, however, knew better and jumped in to cash on this discrepancy. They bought shares of GLD, then redeemed 22 million of them for 2.2 million ounces, or 68.7 tons of physical gold, which they have already sold to jewelers, mints, and panicking people convinced of the impending demise of all financial systems. The profit, after redemption fees, was not big in money-manager terms, but it was risk free, which is what arbitrage trading is all about.

Whenever mass hysteria hits the market, it is those with a rational head on their shoulders who make the most money.

Independence Day: Decoupling Gold and Silver from the Dollar

Lester,

Interesting concept. However, remember that government, in its current form, existed long before fiat money. Until a couple of centuries ago, most forms of currency were actual pieces of gold or silver, and government was as powerful then as it is now, perhaps even more so. Fiscal and monetary policy may be a function of a government's ability to fluctuate its currency, but the essence of sovereignty has little to do with gold.

Independence Day: Decoupling Gold and Silver from the Dollar

"Precious metals went up, while the dollar went down. Everyone is amazed." - Who exactly was amazed? Precious metals have had an inverse correlation with the dollar since 1971, when the US abandoned the Gold Standard. Before that, the US dollar was pegged to gold, so your statement "Gold and silver have never been tethered to the dollar" is also incorrect.

I didn't read much further, as this seems to be yet another rehashing of your Colossal COMEX Conspiracy series, with which we are all familiar.

The Disconnect Between Supply and Demand in Gold & Silver Markets

According to the COEMX rulebook, physical delivery of precious metals can only be made to a registered facility. Some of the larger NY banks have such a facility. If you have an account with J.P.Morgan or Bank of New York Mellon, they'll be happy to arrange for such physical delivery. How you would benefit from that I don't know, since you wouldn't have access to the metal unless you are a licensed jeweler or precious metals dealer.

All these regulations were put in place to prevent tampering with gold and silver, a problem that was common before the 20th century and practically eliminated when the certificate system was put in place.

The Disconnect Between Supply and Demand in Gold & Silver Markets

Mr. Conrad,

"That tends to indicate that they were guilty, as charged." - no one is charged in a civil lawsuit, and no one is "guilty" or "innocent". You've been watching too much TV. There is a plaintiff, a defendant, and the result is a judgment in favour of one, both, or neither side.

The $1.5M cash settlement Morgan Stanley agreed to was chump change compared to what it would have cost them in legal fees to take the case to court and win. And have no doubt about it, they would have won this case. Every bank and broker charges not just for storing gold and silver, but even for storing cash or bonds. No bond certificate has been printed in decades; they are all in "book entry" form, like the cash in your chequing and savings accounts, for which you also pay monthly fees.

Other than small transitional amounts, banks and brokers don't hold anything in vaults any more. You can still rent a safety deposit box, but that has nothing to do with banking services. Cash, stocks, bonds, and precious metals have all been in book-entry form, or as you might call it, "fake", for many decades, and the system seems to work just fine, thank you.

According to your definitions, any fiat money--currency not backed up by gold--is "fake". The Gold Standard was abolished in 1971. I'm not sure why all the excitement now.