'GLD' GOLD - Paper promises or the real thing?

[peterpr]

Further to my post #13 on the 'Gold Banging on the ceiling' thread, there's further confirmation today that, far from making gold genuinely more accessible to ordinary investors, the new WGC ETF (GLD) is likely to become just another vehicle for serious gold price manipulation by those with an interest in suppressing its price - ie G7 governments and their Central Banks.

It seems that the presumed 'bullion backing' of the ETF is just that - 'presumed'. But the presumption is NOT auditable since the fund's regulatory regime allows for at least partial 'custodianship' by the FED whose gold holdings (IF it still has any ) are not subject to external audit. In other words, they are just paper promises to deliver gold, rather like the dollar used to be until Nixon's repudiation of that promise.

As a worst case scenario, this means that the FED and its proxies can short the ETF to their hearts content without any serious prospect of having to deliver physical bullion as a result. With the ongoing Blanchard & Co -v- Barrick Gold & JP Morgan class action (see post #5 on the same thread) severly limiting one method of FED manipulation, they appear to have put another in its place - after all the last thing in the world they want right now is a run away gold price free of any FED control whatsoever!

Not of much interest to those simply wanting to day-trade the GLD charts I guess, but BAD news indeed for serious gold bulls who dream of a sound currency free from the hollow promises of FED (and other CB) paper.

See: http://news.goldseek.com/JamesTurk/1102312799.php

 

[roguetrader]

A very useful product for the swing trader I should imagine, and I for one will be watching it for liquidity once the initial fuss dies down, with a view to daytrades. Prior to this I was using gold miners as a proxy for gold.
Interesting article none the less. My perception of etf's generally, was that they were pretty transparent as they simply tracked a basket of stocks. This one would appear to bring a new twist.

 

[peterpr]

A very useful product for the swing trader I should imagine

As you say another potentially useful and interesting swing/day trade product. There are two quite separate issues here though:

1. The alleged historical and ongoing suppression of the gold price and the unique, gold specific mechanisms and methods available to Central banks to do so.

2. The usefulness of GLD as a tradeable item

1 is a fascinating subject all on its own. When you dig a bit it becomes quite obvious that just about the biggest threat to the Bretton-woods fiat currency settlement was (and to some extent still is) seen by Treasury authorities as gold itself, and that its price had therefore to be suppressed at almost any cost. There's no doubt that the absence of a physical gold audit other than on the non-central bank custodians makes GLD an attractive vehicle for continued such manipulation. Problem for the 'manipulators' is that it will be watched like a hawk. My guess is that, unlike with Barrick Gold, a net short open interest anywhere near the total world physical stock will simply bring the ETF into disrepute, so they are going to have to be very careful.

2 The audit and/or physical delivery requirements on other ETF's make them pretty fireproof proxies for the indices or commodities they represent. Not so (it appears) for GLD/Bullion though. So long as traders are aware of the anomaly, they can no doubt factor the potential effects into their trading. After all they've been doing just that for the past 20 years.

So - OK as a trading vehicle but not as a viable proxy for bullion itself.

 

[peterpr]

The following press release today from GATA (Gold Anti-Trust Action Committee:

World Gold Council's Bullion Fund
Double-Counts Gold Bars, GATA Says


GATA Press Release via Business Wire
December 6, 2004

More than 2 percent of the gold reported as the property
of the World Gold Council's new exchange-traded bullion
fund on the New York Stock Exchange (GLD) appears to
have been double-counted on account of duplicate serial
numbers on the fund's gold bars, the Gold Anti-Trust
Action Committee said today.

The duplication was discovered by GATA consultant
James Turk, editor of the Freemarket Gold & Money
Report and founder of the GoldMoney gold depository
and Internet-based gold payment system. Turk
examined the bar list reported to investors by the fund.

In today's statement, GATA argued that the duplication
of bar numbers deepens concerns about the adequacy of
the bullion fund's custodial and auditing arrangements.

"For years the suppression of the gold price and the
manipulation of the gold market have been facilitated by
the mystery that has been deliberately woven around the
leasing of gold and around gold custodianship generally,"
GATA said. "If the World Gold Council's bullion fund is
not to be suspected as another part of that manipulation,
the council must answer some questions urgently:

"-- Why does the bullion fund list ownership of duplicate
gold bars?

"-- Why have all the custodians and potential custodians
of the fund's gold not been identified?

"-- Why is the fund refusing to let its gold holdings
be fully and publicly audited?

"-- Is any of the fund's gold being leased, made
available for leasing, or encumbered in any way?

"-- Exactly what is the fund's relationship with the
Bank of England, a major lessor of gold?"