Polls
Loading ...Blogroll
- ANA
- CCE/FACTS
- Chinese Coin News
- Coin Update
- Coinnet. We are WI78. A dealer to dealer nationwide network.
- Coinwebsites.Com
- Follow us on Facebook.
- ICTA-Precious Metals Trade Group
- J&T Coins LLC Website
- Oconomowoc Chamber of Commerce
- Visit Waukesha County
Categories
Daily Popular
Is Your Gold Bullion Safe In An ETF?
What’s hotter than the price of gold? Gold conspiracy theories. Conspiracies theorists say that the price is being manipulated, by central banks and big dealers, and that when the truth comes out, the price of an ounce could go haywire–say, to $3,000 or $5,000.
The purported plots against gold loving investors are pretty convoluted. Among the possibilities:
–Many of the gold bars in vaults are fake, having been replaced with tungsten, a metal with a nearly identical density.
–Some of Uncle Sam’s giant gold hoard may have gone missing. The bars have been either whisked out of Fort Knox by government agents or, more likely, pledged or traded away in derivative transactions involving other central banks.
–The banks that act as custodians for gold bullion funds are not to be trusted, because they have secret short positions in gold futures.
Some of this is borderline kooky. Some is almost plausible. Just what are the U.S. Treasury and the Federal Reserve up to with their gold reserves? No less a personage than U.S. Representative Ron Paul (R—Texas) is demanding an outside audit of the Fed, in part to get an answer to this question.
If you believe the official numbers, published by the World Gold Council, the U.S. government holds 8,133 metric tons worth $343 billion. The stash is divided among a number of sites: Fort Knox in Kentucky, an underground vault at the New York Federal Reserve Bank, a vault in West Point, N.Y. and storage bins at some federal mints.
But that N.Y. Fed vault also contains metal belonging to other nations. How do we know that the Fed hasn’t traded away its gold reserves?
That’s the question being pointedly asked by something called the Gold Antitrust Action Committee (a.k.a. Gata). This little nonprofit (budget so far this year: $50,000 or so) is trying to fling open the doors of the secretive Federal Reserve with a Freedom of Information Act lawsuit seeking documents on gold swaps. So far, no dice. The Fed has asked the U.S. District Court for the District of Columbia to throw the suit out.
Gata is the creature of long-time gold bugs William J. Murphy, 64, and Chris Powell, 60. Murphy, who was briefly a pro football player, runs a gold watching site out of a Texas office. He estimates that he has 2,500 subscribers (at $299 a year) to lemetropolecafe.com. Powell has a day job as managing editor of the Manchester (Conn.) Journal Inquirer.
The pair pay Gata’s bills with contributions from individuals and smaller gold mining companies. Powell says that the big miners shy away from chipping in lest they offend the governments that control their mining permits.
Powell’s analysis of the gold market: The Fed is in cahoots with other central banks, such as the Bank of England, to “surreptitiously” depress the price of gold by selling from their stockpiles. Surely the motivation is there. If gold went to $5,000 an ounce, pounds and dollars would suddenly look rather worthless and the next thing might be a bout of hyperinflation.
There’s also no denying that the U.S. government’s holdings are shrinking. The tonnage was three times as high at its peak in the mid-20th century. Even if this country still owns 8,133 tons unencumbered by any swap or other obligations, it could someday run out of ammunition with which to keep the value of a dollar propped up.
All this talk of dark plots and secretive central banks plays into the hands of gold bullion vendors. These dealers in coins and bars compete with the exchange traded gold funds like SPDR Gold Shares (GLD), which sell paper claims on trusts that hold gold in bank vaults.
Of course, if you trust no one’s paper you take possession of the metal and put it under your bed, next to a shotgun. The problem with this approach lies in the transaction costs.
Banks can trade gold bars back and forth with some efficiency because they have not just assaying equipment, but paper trails detailing ownership of a bar from the moment it was cast by a member of the London Bullion Market Association. You don’t have that when you waltz into a dealer looking to sell a 400-ounce brick. Coins can’t be trusted, either; fake gold of various sorts can be found on Ebay.
Buy gold coins from a dealer and you’ll pay a premium of 5% or more over the metal value, says William Rhind, who runs the U.S. marketing arm for ETF Securities, which offers a SPDR Gold competitor called ETFS Physical Swiss Gold Shares (SGOL). You’ll also suffer a discount of 5% or more when you go to sell coins, he says. And of course you have to worry about whether the dealer slipped you a gilt-edged hunk of tungsten.
Powell and Murphy don’t like shares of any of the big ETFs. (The category, led in size by the SPDR product, also includes iShare’s gold fund, ticker IAU.) What’s not to like? Two things. One is that shares in these entities, which are organized as business trusts, entail only an indirect claim on a pile of gold. Unless you are a big brokerage firm, you don’t have the right to take your shares to a teller window and get the metal in exchange.
The other thing about the ETFs is that they use custodians like HSBC and JP Morgan Chase that are players in the wholesale gold market. Therein lies a potential conflict of interest with duty, says Gata. The Gatans prefer services like BullionVault, an online venture that assigns you your own chunk of gold, stored in New York, London or Zurich.
Rhind, for his part, pooh-poohs most of the Gata theory about collusive pricing in the gold market. He is selling into a different set of fears. You’ll love his firm’s product if you are uneasy about some of the newer and smaller players in the gold hoarding business.
ETF Securities, founded in 2003 by investment banker Graham Tuckwell, is one of the largest operators of commodity ETFs, with $21 billion of assets. Its gold is in the custody of UBS and under the watchful eye of auditors who occasionally drill into the bars to prevent any funny business. The metal is in Zurich, far from the reach of any future U.S. decision to outlaw the private ownership of gold. Banks in London and Toronto are less safe, Rhind says, because their host governments can’t be trusted not to go along with a confiscation order like the one that came upon U.S. savers in 1933.
Yikes—a conspiracy between the U.S., Canada and England? It could happen. Anything could happen.
Three Reasons Silver Is Likely to Shine
Editor’s Note: This article was written by Kevin Grewal, editor of SmartStops.net.
Although gold continues to grab most of the attention in the precious metal world, its less glamorous sister, silver, may be more appealing, and for good reason.
First off, silver has many more uses than gold. It’s used for numerous industrial purposes and nearly 55% of total silver fabrication is used for industrial purposes. Silver is commonly used in the electronics space and can be found in plasma display panels and printed circuit boards, as well as in the lining of refrigerators, for food storage containers, and for water purification. Additionally, the metal can be used as an antimicrobial to fight bacteria and as an antiseptic to treat fungal infections. Silver’s industrial uses even span to the solar energy industry. As economies around the world continue to expand, the industrial demand for silver will likely follow.
Another force that’s likely to support silver is that valuations appear to be strong. In a nutshell, silver is cheap and depressed on a historical basis, when compared to its sister metal, gold. Gold is trading much higher than its long-term ratio of 16 times the price of silver, indicating that there’s plenty of room for silver prices to run. Additionally, silver is nearly 70% below its all-time high witnessed in 1980 and well below its near-term high of $21 per ounce seen in 2008.
Lastly, diminishing supply is likely to bolster the metal. According to a study conducted by the United States Geological Survey, silver is nearly twice as rare as gold in the long term because it’s not recycled at the same rates as gold and at current consumption rates all of the silver that’s in the Earth’s crust will diminish away in the next 25 years.
A combination of these factors will likely provide support to silver prices and the following ETFs are likely to reap the benefits:
- The iShares Silver Trust (SLV), which physically holds silver bullion and closed at $17.24 on Thursday.
- The PowerShares DB Silver Fund (DBS), which holds futures contracts in silver and closed at $31.14 on Thursday.
- The ProShares Ultra Silver (AGQ), which seeks to gain twice the performance of silver bullion and closed at $55.55 on Thursday.
- Global X Silver Miners ETF (SIL), which gives exposure to companies involved in mining, production, and exploration of silver. SIL closed at $14.36 on Thursday.
When investing in these equities, it’s important to consider factors that could potentially hinder the price of silver like an unexpected surge in the dollar. A good to way to protect against these factors, as well as against the inherent risks involved with investing in equities, is through the use and implementation of an exit strategy that triggers price points at which an upward trend in gold could potentially be coming to an end.
According to the latest data at SmartStops.net, the price points for the aforementioned ETFs are: SLV at $16.80; DBS at $30.86; AGQ at $54.70; SIL at $13.31. These price points fluctuate on a daily basis and reflect changes in market conditions
.
| New COMEX Rule: Another Reason to Fear ETFs |
|
Regardless of their expensive annual fees, frequent tracking errors, and the simple fact that you’ll never be able to actually touch the gold or silver your ETF claims to hold, there are several more reasons ETFs should never be used by precious metals investors. An important rule change by COMEX, the American commodity exchange, allows ETF substitutes for precious metal delivery.
Paper as Metal
To address a temporary problem of liquidity, COMEX has systematically created an even bigger problem for investors. The exchange allows investors to make good on their futures positions with gold and silver ETFs rather than the real assets, thus opening up the door for hugely distorted market prices.
How it Works
Under the clause 104.36 in the COMEX rulebook, exchanges can take place on the exchange as long as the products meet certain criteria. After sorting through legalese, investors find that the criteria isn’t as demanding as one would expect from a multi-trillion dollar exchange, but is actually quite loose. COMEX requires that exchanges be made in economically equal products. For instance, a 1000 ounce silver futures position can be used in the delivery of 1000 ounces of silver, despite their inherent differences.
This creates immense problems for investors, as well as the exchange itself. First, no silver actually trades hands, but only a silver derivative that has supposed claims to silver. Second, the exchange-traded fund is economically similar in that it has equal worth to the same amount of silver; however, investors cannot receive physical delivery from the ETF issuer. In essence, purely derivative investments are equal to physical metals in the eyes of COMEX, even though the reality is quite different.
Further Complications
Reading from the prospectus of the two biggest gold and silver exchange-traded funds reveals that through the COMEX marketplace, paper can really be turned into gold! The popular SLV ETF discloses in its prospectus that there are times when the exchange-traded fund will hold cash, or cash equivalents, allowing itself the opportunity to issue more shares than the silver it actually holds in the trust.
In addition, the exchange-traded fund has the ability to make claims against third parties (a derivative) to track the price of silver on the marketplace. This opens the door for large manipulation in the silver markets, as investment dollars in the ETF can be placed on derivative bets. Then the shares can be exchanged through COMEX to meet delivery on futures positions.
The result is that derivative products owned by SLV can easily find their way into what is supposed to be a purely physical market, allowing for the opportunity of an oversupply of silver compared to what is actually in existence in vaults.
What it Means for Investors
ETF investors are clearly at a disadvantage, although the chance of manipulation is only a bullish signal for physical investors. COMEX rules have allowed artificial inflation of the amount of silver futures available prices, and it is sure that physical metals will only gain in value as this comes to light. There is simply no better investment than physical metals both for the short and long term.
Dr. Jeff Lewis
SPDR GOLD TRUST SALES
Gold bubble worries lead to significant sell-off in top gold ETF
Investors have been taking profits in their holdings in the world’s largest gold ETF on ‘burst bubble’ worries
Author: Lawrence Williams
Posted: Wednesday , 09 Dec 2009
LONDON -
The world’s largest gold-backed exchange-traded fund, SPDR Gold Trust (GLD), noted that its holdings fell to 1,116.247 tonnes, worth over $41 billion at the current gold price, as of December 8th. This represented a fall of 1.2 percent or more than 13 tonnes in a day and was the largest one-day drop in around five months according to a Reuters report. The SPDR Gold Trust ETF hit a record high of 1,134.03 tonnes on June 1, and up until recently had been climbing back towards this level again.
Further falls were expected to be announced today as the gold market is going through a period of uncertainty and some investors are liquidating some or all of their holdings, and taking some hefty profits, in case the recent gold price falls are because a gold price ‘bubble’ has burst.
The SPDR Gold Trust gold holdings are larger than those of most nations’ Central Banks, and there has always been a worry that this overhang of gold, effectively in fickle investors’ hands, could in itself prompt a catastrophic fall in the gold price if sentiment moved sufficiently to generate a major sell-off, leading to a downwards price spiral.
So far this has not happened, and with the weaker dollar this morning seeing the gold price pick up, and continuing economic uncertainty, there is evidence of buyers coming back into the gold market seeing the earlier falls as a good buying opportunity, and ignoring the ‘bubble’ talk.
There is no doubt that the recent sharp movements in the gold price that have seen it fluctuate up and back down by nearly $100 in the past weeks make this a market for those with nerves of steel. Several observers have warned of excessive volatility ahead and these warnings are definitely coming into play. The fundamentals which have been driving the gold price upwards are still in play, but as we have warned before on Mineweb, markets are often driven by investor sentiment and if the force is no longer seen to be with gold there could be even more volatility ahead for the price until some stability sets in.
Movements up or down in the SPDR gold ETF holdings will thus be watched with particular interest over the next few days as this will be a good indicator of where gold investment sentiment is trending.