As the world’s
second-largest exchange-traded fund, and sixth-largest holder of gold
bullion, the GLD gold ETF has grown into a juggernaut. GLD’s mounting
popularity among stock-market investors and speculators has made it one of
the most powerful forces in the global gold markets. This ETF’s
success is all the more remarkable considering it was born just 5 years ago,
its rise to prominence has been meteoric.
With GLD’s large
and growing impact on
gold prices,
no trader can afford to ignore this behemoth. So it is watched with intense
interest, creating a fertile breeding ground for GLD conspiracy theories to
flourish. A small yet surprisingly prolific fringe of GLD opponents has
done an impressive job sowing rumors and doubts about this trading
vehicle. Each time I discuss GLD in my writings, I hear about these theories.
GLD’s amazing
success speaks for itself, this flagship ETF certainly doesn’t need
anyone to defend it. Still, the rampant GLD conspiracy theories are
misleading and confusing new gold investors and speculators. Some mainstream
investors hear these conspiracy theories and, lacking the background to
evaluate them rationally, assume they are true. This slows the migration of
stock-market capital into physical gold via the conduit of GLD and dampens
this gold bull’s progress for all gold investors.
Conspiracy-Theorist
Modus Operandi.
Since there are always people who simply love trafficking in paranoia,
conspiracy theories have always existed and will always exist. Whenever
any institution gets large enough to single-handedly affect a given market, conspiracy
theorists rush in to spin fanciful tales about it. Though true in all
markets, conspiracy theorists have always had a special affinity for gold.
By their very nature,
most conspiracy theories can’t be proven or disproven. They are all
born in rumor. Conspiracy theorists create rumors out of thin air, bouncing
them around in their own private circles where the theories are shaped and
embellished. While most theories wither on the vine, some gain enough
momentum to break out of these circles and achieve wider exposure. These
rumors come to be treated as fact,
held on to by their adherents with zeal comparable to that of the devout for
their religion.
Once rumor becomes
accepted as fact, conspiracy theorists defend their belief system with all
the ferocity of a mother bear guarding her cubs. Their acceptance of anyone
hinges on their acceptance or rejection of their pet theory. If you
advance it, they love you no matter how wrong you are about everything else.
If you reject it, they hate you no matter how right you are about everything
else. The theory is worshipped.
Successful investment
and speculation require total emotional neutrality. If you can’t
suppress and ignore your own greed, fear, and every other emotion, you will
never grow wealthy in the financial markets. This creates enormous
problems for conspiracy theorists, as their attachment to their theories is
so emotionally-charged that they surrender their ability to think rationally.
Logic is thrown out the window.
This makes reasoning
with conspiracy theorists almost impossible, like trying to convince a devout
Muslim that Jesus Christ is God. This extreme emotionality leads to the
common conspiracy-theorist trait of resorting to ad-hominem attacks when
challenged. Instead of calmly debating ideas on those ideas’ own merits,
they instead shrilly try to ridicule and discredit people advancing those
competing worldviews. Calling people names instead of addressing ideas has
always been a sign of intellectual inferiority. It reminds me of small
children bickering on a playground.
Eventually all
conspiracy theories fade from prominence even among conspiracy theorists,
their lifespans are limited. Sometimes these theories are proven wrong beyond
all reasonable doubt. Yet the conspiracy theorists that advanced the false
theories never repent or apologize for misleading people. Instead they
conveniently forget their past gullibility and false witness, eagerly moving
on to embrace the latest fashionable emerging conspiracy theories. Conspiracy
theorists never
hold themselves accountable.
GLD Founders’
Intent Problem.
One of the more outlandish GLD conspiracy theories states that GLD is a
Trojan horse explicitly designed and launched to use stock-investor capital to short physical gold.
But when you consider the circumstances surrounding GLD’s founding,
this theory is pretty silly. GLD was created by the World Gold Council. The WGC is an industry
association funded by the world’s leading gold-mining
companies. The biggest, best, and most beloved gold miners in the world
finance the WGC!
At the time of
GLD’s planning, the guy running the World Gold Council was the CEO of
one of the world’s biggest and best gold-mining companies. A
staunch opponent
of gold hedging back when it was common, this architect of GLD was
universally adored by gold investors including conspiracy theorists. He
and the gold miners had a simple goal, “to stimulate and maximize gold
demand by investors”.
Why would the biggest
and best gold miners in the world, whose entire futures hinged on the
ultimate trajectory of the gold price, launch a Trojan horse designed to
short-circuit this gold bull? This thesis is ludicrous, it makes no
sense at all. The gold miners of the world fund the World Gold Council and
hold absolute power over its direction and agenda. GLD was birthed by
the very companies with the most at stake in this gold bull. If you
owned gold stocks between 2002 and 2004, you helped pay for GLD’s
launch.
GLD Silent Opponents
Problem.
Conspiracy theorists often maintain GLD is a total fraud that doesn’t
actually own any physical gold. If this thesis was proven true, the resulting
scandal would be incredibly damaging to gold investment. So many investors
would be burned, so much damage done to gold sentiment, that it would
probably take years for the gold bull to recover from such a shock.
Conspiracy theorists
are the first to acknowledge that many powerful forces are not happy when the
gold price is climbing. Rising gold prices undermine central banks’
fragile fiat currencies, as this metal is the mortal nemesis of all the
endless monetary manipulation central banks practice. And Wall Street
hates gold too, as a rising gold price competes
with the stock markets. This metal diverts away capital
(and attention) that Wall Street believes should be invested in stocks
instead.
Since breaking the back
of this gold bull would be hugely beneficial to both central banks and Wall
Street, why haven’t they exposed GLD as a fraud? Central banks surely
know if GLD is really buying gold bullion or not, they could pull the plug in
a second if GLD’s claims weren’t true. Wall Street, with its
intimate knowledge of aggregate capital flows, is in a similar position. Why
not expose such a fraud and destroy gold-investor psychology?
Why haven’t
London gold traders exposed GLD? They would know if it wasn’t really
buying and selling physical gold bullion as claimed. One trader who blows the
whistle would gain considerable fame. Why hasn’t the US Securities and
Exchange Commission (GLD’s regulator), which is reeling and fighting
for its life after failing to uncover the Madoff scam, exposed a GLD
fraud? It would give the circling politicians a great reason not to
strip the SEC of its authority and merge it into other regulators.
The silent opponents,
those powerful vested interests that would love to see GLD fail for various
reasons, are a huge problem for conspiracy theorists. GLD is not a small
operation, countless professionals can see various aspects of its actual
gold-trading operations in the real world. Perhaps the fact that those people
and institutions in positions to know if GLD is legit, circles in which many
are very anti-gold for various reasons, have not called out GLD as a fraud is
revealing in itself. The only reason they wouldn’t is if GLD was the
real deal, actually doing what it is claiming.
Interestingly when the
comparable SLV silver ETF was in its own
planning stage, its opponents weren’t silent at all. The Silver Users
Association, companies that use silver for industrial purposes, actually
aggressively lobbied the SEC to not
approve this new ETF. The SUA “opposes the creation of a silver ETF
because of the concerns that doing so will require the holding of physical
silver in allocated accounts, thus removing large amounts of silver from the
market.” It knew SLV would buy physical
silver, and fought it so stock capital wouldn’t drive silver higher.
Industrial users know
these ETFs are real!
GLD Certainty and
Security Fallacies.
Conspiracy theorists always ask how I know that GLD really holds physical
gold bullion as advertised. I don’t know, and neither do they. Nothing
is certain in the financial markets, and the anti-GLD crowd hypocritically
tries to hold GLD to a standard that no other investment is held to. All
markets are based on trust, and as investors we can never be certain whether anything is
legitimate.
When you buy a gold
stock, all you have is the claims of the company. Anything it tells you about
its operations can be misleading (intentionally or unintentionally) or
outright lies. Even if you fly out to its mines and visit them, you
can’t tell whether the rock really bears the gold-bearing ore as
claimed. An insider with the intent to defraud can easily fool even a trained
geologist or auditor. You take it on trust, on faith, that the gold stocks
you own are really doing what they say they are. You can’t prove it.
When you buy a physical
gold coin, despite what the dealer claims you can never know for sure if it
really has all the gold content advertised. It could be a variety of other
metals that are gold-plated. All reputable dealers have devices to check the
mass of coins, but what if the dealer is trying to defraud you? Or what if
the manufacturer of the detection devices is crooked? You can believe the
physical gold coins you buy are the real deal, but without destructively
assaying each one (with an assayer you trust) you will never know for sure.
You accept the dealers’ claims of the authenticity of your gold coins on pure faith.
All investing is based
on faith, as is our whole modern economy. We have no choice but to trust and
take claims at face value unless proven
otherwise. We all eat food that we never saw grown, transported, or prepared,
yet we assume it won’t poison us. We drive in cars and fly in airplanes
we never saw manufactured or tested for quality. Whether or not GLD
actually holds and trades physical gold bullion as claimed can be known with
no more certainty than anything else in the investing world.
This certainty fallacy
dovetails into the security fallacy. There is a GLD conspiracy theory
claiming it is a secret front for the US government to amass investors’
gold in one place so it can easily be seized at some point. Can GLD gold be
more easily seized than gold coins in your own fist? Of course,
although GLD’s gold is stored in London bank vaults (the gold-trading
world capital) and not on sovereign American soil. So Washington
couldn’t seize it instantly, it would have to negotiate with the UK
government first.
But are gold coins in
your own control perfectly secure? Of course not. Thieves can find them. Even
worse, the government can take all your property, your freedom, even your
life if it really wants to. Without property, freedom, or life, gold is
totally useless. Nothing
is secure in this world. There is no investment you can own that can’t
be taken away from you by either lawful or unlawful parties backed by the
necessary force. So arguing that something has absolute security while GLD
doesn’t is a logical fallacy.
GLD Redemption Fallacy. Conspiracy
theorists argue that GLD is not redeemable for physical gold, and they are
absolutely right. But it was never intended to be. This argument is
about as rational as claiming that since junior gold stocks don’t pay
dividends, there is no reason to own them. Just like junior-gold-stock
shareholders don’t buy these hyper-risky speculations as dividend
plays, GLD shareholders don’t buy this ETF for redeemability.
Since it was a mere
thought in its architects’ minds, GLD was never intended to be a
redeemable vehicle. It is not a gold futures contract, nor a gold
note. It is simply a
tracking vehicle. It was intentionally designed to give
stock-market capital easy exposure to
the price of gold, a mission it has performed absolutely
perfectly.
Investors who would never or could never buy physical gold coins or trade
gold futures were given the awesome ability to trade a gold tracker directly
within their usual stock accounts.
Gold stocks are not
redeemable for gold either, yet conspiracy theorists still happily own
them. Claiming GLD is flawed because you can’t turn it in for gold
on demand is pretty silly, because it was never intended to be such a
vehicle. At any time, stock traders can instantly sell GLD (or gold stocks)
and take the resulting cash down to their local coin store and buy physical
gold coins if they wish. Redeemability isn’t GLD’s mission.
GLD False Audit Claims. Conspiracy theorists love to claim that GLD
is not audited, and therefore it cannot be trusted. As a Certified Public
Accountant who used to audit publicly-traded companies for one of the
world’s top 4 accounting firms, I find this line of theories
particularly amusing. Their underlying assumption is that an audit magically
grants that desired certainty that is impossible to find in this world.
If GLD wanted to fool
its auditors, it could. It is very difficult, if not impossible, for
even the best auditors to detect fraud if insiders have cleverly colluded to
hide it. And there is little doubt that even if the elite CPA firm of
conspiracy theorists’ choice audited GLD, they still wouldn’t
believe the results. Remember that conspiracy theories are held with an
emotional almost-religious zeal, new information isn’t considered
rationally.
Imagine the ultimate
audit for a conspiracy theorist, GLD flies him personally to London to see
and touch the gold bars in its vaults. Even though that person saw lots of
gold, he’d claim that he couldn’t count it. Even if he
could count it all, he’d claim that he didn’t know if the bars
were solid gold. Even if he had a huge number of bars destructively
assayed, he’d claim that the assayer could be in on the fraud or it
could be hiding in the bars not tested. Like everything in the markets,
audits must be taken on faith since they can’t provide certainty.
Provocatively, GLD does actually have
third-party audits of its physical gold despite conspiracy theorists’
rants to the contrary. This ought to be really embarrassing to the
conspiracy theorists, as it proves they just parrot old rumors rather than
doing original research on their own. GLD hires Inspectorate, a venerable
commodities-testing and inspection company founded in 1927. Each year it
performs one complete
physical-bar count and a second random-sample count at a different date. It
certifies the results.
GLD is very transparent,
something the conspiracy theorists ignore since secrecy is needed to shroud a
conspiracy. You can go to GLD’s website today and download the
actual Inspectorate audit reports. Provocatively, these reports
typically show some anomalies. With such large and growing holdings, a tiny
fraction of new gold bars are inevitably not recorded perfectly from time to
time. It’s funny as the conspiracy theorists, who should seize on these
anomalies to trumpet GLD’s flaws, never do. Why? They never
bother actually looking at the data with their own eyes, it is much easier to
parrot rumors than do research. And to attack GLD’s audit reports, they
would first have to embarrassingly admit it
is actually audited!
In addition to these
audit reports made public in full, each
week GLD publishes a comprehensive list of every single one of
its gold bars. Each bar has its serial number, refinery name, gross weight,
fine weight, and assay percent listed individually. The current list of
90,628 gold bars averaging around 400 ounces each is 1620 pages long!
If GLD was a fraud, why would it bother fabricating a 1620-page list of
individual bars that its custodial bank certifies? GLD doesn’t need to
publish this, and making this data available to researchers weekly would be a
sure way to get caught since fabricated data can’t stand up to external
scrutiny for long. Experts in gold bars and refinery practices could easily
detect a fake list of this size.
The truth is GLD is externally audited,
its third-party auditors physically count and certify every single bar once a
year. And just so you know, in the auditing profession having one complete
physical count a year is standard for publicly-traded companies in most
industries. I used to run these physical counts myself in my audit
days. And each week, GLD provides a comprehensive list with individual
details of every
bar of gold it holds in trust for its shareholders. As an ex-auditor, I
can’t imagine what else GLD could do to be more transparent.
Despite the conspiracy
theorists’ oft-repeated lie, GLD is indeed audited professionally by
external auditors specializing in commodities for over 80 years. This
venerable physical-audit firm is finished if it is not telling the truth on
GLD, so the stakes are stellar for these auditors. But no matter who audited
GLD, whether a Big 4 CPA firm or the conspiracy theorist himself with his own
eyes, it will never be good enough for them. Why? They intensely dislike GLD
for emotional religious-like reasons, not for logical or rational ones.
Are GLD’s Huge
Holdings Plausible?
Another GLD conspiracy theory asserts there is no way GLD can actually be
buying as much gold as it claims because of the periodic shortages of
physical gold coins. From time to time the incompetent US Mint shirks its
Congressional mandate of producing gold coins in “quantities sufficient
to meet public demand”, leading to shortages. This is known in the gold
world as the
fabrication bottleneck.
Most individual
investors buy gold in one-ounce national coins. Why? They are beautiful,
readily recognizable (and hence easy to sell) worldwide, and they have a
price point small investors can afford. A single coin for $1200 (not
including premiums) or a dozen for $14k are within the reach of small
investors. Unfortunately, with gold investment soaring the national
mints can’t keep up with demand. Even running 24/7, they can’t
get enough blanks (coin-sized flat discs of gold) to stamp into official
coins. So supplies of official coins run out periodically and often command
high premiums.
Meanwhile GLD, like
central banks, deals exclusively in 400-ounce
“good-delivery bars”. At about $480k each at $1200 gold, these are beyond the
reach of all but the most successful individual investors. I have a lot
of wealthy clients but have yet to meet any individual who has ever bought a
good-delivery bar. These bars are the standard form gold refineries produce
from the dore (partially refined gold and silver) shipped to them by miners.
There has never been a shortage of 400oz bars, they are on the abundant other
side of the fabrication bottleneck.
So just because your
local coin store doesn’t have Gold Eagles one day doesn’t mean
there is a worldwide gold shortage. That logic is like claiming that since
your local grocery store ran out of hamburger one day there must be a global
shortage of cows. The global gold markets, like the meat markets, greatly
transcend locality and the specific forms the final finished products take.
GLD’s vast scale
makes all forms but 400oz good-delivery bars uneconomical. As I mentioned
above, it actually lists all 90,628 of them individually with all relevant
stats. One-ounce national coins are too scarce, command too high of
premiums, and have far-too-high transaction costs for an entity of
GLD’s size to deal with. All of the world’s central banks that
own gold also hold this common form of bulk gold produced in great quantity
by refineries.
Today GLD’s
holdings
aren’t far from their all-time high of 1134 metric tons of physical
gold bullion in the form of these 400oz bars. This means that since
GLD’s birth in November 2004, it has claimed to purchase about 1130t of
physical gold bullion. But if you can’t buy one-ounce coins at decent
prices whenever you want, where did GLD find such vast amounts of 400oz bars?
There are two sources, and each alone is more than sufficient to explain
GLD’s holdings and growth.
First, as new gold is
mined worldwide most is refined into 400oz bars. If you want to understand
annual global gold production over the last decade, my business partner Scott
Wright wrote a great essay on it in July. Between
2005 and 2008, the only full calendar years of GLD’s existence, the
average global gold production ran 2410 tonnes per year, or 9640 tonnes total
over this 4-year span. Does GLD’s 1130t sound outrageous relative to
this? Of course not, it is almost immaterial compared to mine
production.
And if there is one
thing that gets conspiracy theorists going, it is central-bank gold sales.
Back in August I wrote an essay analyzing the infamous Central Bank
Gold Agreement
selling programs. While CBGA years don’t line up exactly with calendar
years, in 2005 through 2008 the major CBGA signatory central banks alone sold
1854 tonnes of gold. All in the form of 400oz good-delivery bars!
So central-bank sales alone provided more than enough gold bullion for GLD to
buy even if mined supply had been zero.
Conspiracy theorists
also argue that central-bank gold sales are a lot bigger than officially
reported, in which case it would be even easier for GLD to buy a measly 1130t
of gold in its lifetime. It is endlessly amusing to see the conspiracy
theorists rant about central-bank gold sales and then in the very next breath
say there is no way GLD could have bought so much gold because they can’t
buy a Gold Eagle themselves. You have to laugh! Such
inconsistencies are rife when emotions drive market beliefs.
A corollary to these
theories is the belief that if GLD had bought so much gold, it would have
moved the gold price. This is funny too. Since the day GLD was born, the gold
price has rallied 175% at best (as of last week). When GLD launched, the
conspiracy theorists claimed its “shorting” would kill the gold
bull! And GLD’s short-term market impact is very apparent too
when it is buying or selling large amounts of bullion. There are plenty of
examples of this, but February 2009 is the most obvious.
Over just 5 weeks
ending that month, gold surged 22.5% higher. This was all the more impressive
considering the US dollar was actually strengthening
over this span, up 3.4%. So what drove such incredible gold strength in the
face of hostile market conditions? Huge GLD buying. In these 5 weeks,
its holdings grew by 30.1%, or 238 tonnes! Later when the SEC reports
were released, the actual GLD buyer became known. One of the world’s
most-elite hedge funds, loved by Wall Street, bought an 8.7% stake in GLD
over that time frame. The differential buying pressure on GLD shares was so
great that this ETF’s custodians had to shunt this large amount of
stock-market capital directly into physical
gold bullion.
GLD’s
Critics’ Hidden Agendas. Many of the most vocal GLD
critics have hidden agendas that they fail to disclose. I’ve
personally dealt with and spoken to quite a few of the most prominent
conspiracy theorists in the last decade, and I’ve followed their
writings closely. A big fraction of those proliferating GLD conspiracy
theories, either by advancing them themselves or fostering their spread by
creating sympathetic Internet venues, are involved in the physical-gold-coin
business. They perceive GLD as
competition!
Coin dealers believe
GLD is taking business away from traditional physical gold coins. Thus they
have a vested interest in spreading or facilitating the spread of rumors that
undermine confidence in this new trading vehicle. Interestingly rare-coin
dealers have always done this same thing to bullion-coin dealers, stoking
fears of government
confiscation
to scare investors away from bullion coins and into numismatic coins (and
their far-higher dealer profit margins). Some gold-coin dealers have
personally told me they don’t really believe GLD is a fraud, but being
silent on it is good for business.
This is unfortunate
though, as GLD bullion buying drives up the gold price which helps their coin
businesses. GLD was never intended to replace physical-coin buying, it
was designed to open up an entirely
new (and massive) capital market to gold. Many mutual funds
and hedge funds cannot buy gold bullion due to their charters, but they can
buy GLD shares which ultimately funnels capital into bullion driving up the
gold price. In order to keep
tracking
the gold price, GLD has
to shunt excess buying and selling pressure directly into gold
bullion. If it doesn’t, it would fail.
And GLD is a gateway drug for
many stock investors new to gold, a safe and easy chance to get their feet
wet before they graduate to buying physical coins. I have continuously
recommended physical
gold coins as the foundation for all investment portfolios since May 2001
when gold traded at $264. I too prefer physical to paper so I will probably
never invest in GLD personally. But I love it as a trading vehicle. If
I want gold-price exposure, or options on it, for short-term trades, gold
coins are just too cumbersome, slow, and expensive to trade. GLD serves an
entirely different market and purpose than physical gold coins, it
doesn’t directly compete with them at all.
Along with coin
dealers, the other prominent advocates of GLD conspiracy theories are
financial commentators who make a living writing about the markets.
Some have chosen to chase the niche market of trafficking in conspiracy
theories, a business decision which I certainly respect. They cater to
a small but fiercely-loyal customer base that is willing to pay for all
conspiracies, all the time. Since these commentators’ livelihoods
depend on satisfying this particular customer base, conspiracy theories are
all they ever discuss.
If you are an aspiring
financial commentator or analyst, it is tempting to go after this market
because it is so vocal. But believe me, after a decade in this business and
countless millions of dollars of newsletter sales, I know conspiracy theories
are not the path to big success. For every hardcore conspiracy theorist,
there are at least 10 contrarian gold investors not into this stuff. Along
with another 1000 mainstream investors. So if you want to grow a financial
business, you will tremendously limit its potential if you stick to the
conspiracy-theory game. It has always been and forever will be a tiny niche market.
Whenever you see
someone in business tirelessly advocating conspiracy theories, ponder the
vested interest they have. Are their business interests best served by doing
real research and reporting truth, or by pandering to rumormongers? Do
they see GLD as competition and hence have financial reasons to perpetuate
the conspiracy theories surrounding it? In the markets, the desire for
financial gains is the motivating force behind every act.
A GLD Conspiracy-Theory
Case Study.
Within weeks of GLD’s launch in November 2004, an epic conspiracy
theory emerged that threatened to derail this young gold ETF. A prominent
analyst venerated in the gold world, a man who I still respect and admire to
this day, started it. He wrote a bombshell essay claiming GLD was a fraud.
Published on a Sunday, the impact of this was so great that on Tuesday huge
differential selling pressure forced GLD’s custodians to liquidate 15%
of its holdings in a
single day in a flat gold market!
An anonymous amateur
conspiracy theorist wrote an e-mail to this prominent analyst. He discovered
that out of 6981 400oz gold bars then listed on GLD’s comprehensive
160-page holdings list, 2.2% had duplicate serial numbers. Therefore the
analyst concluded that GLD was double-counting its gold bars and was clearly
a fraud. Never mind that it was only 2.2%, never mind that there could
have been some other explanation, this analyst seized the opportunity to try
and destroy the new ETF’s reputation.
His allegations were
serious, and I took them seriously. I downloaded the GLD holdings list
myself and analyzed the raw data. Out of 8306 bars (my analysis used
data a week or two newer), I found 78 duplicate serial-number sets (or 156
bars). This worked out to 1.9%. As a CPA and former auditor, to me
“duplicate” means identical. But in every single case,
bar A and bar B with the same serial number had very different weights!
For example, one set (JMC-UK 2323) weighed 419.208oz fine on bar A and
397.563oz fine on bar B. If these bars had been double-counted, or
duplicated, they obviously wouldn’t all have different weights.
So I wrote our
subscribers that day and told them that though these allegations were
serious, they simply looked like a clerical error. Anyone who has worked on
importing raw data will tell you it is easy to inadvertently truncate a digit
on huge data sets with varying field lengths. I told our subscribers that in
every single case all questioned bars had 4-digit numbers and each set of
“duplicates” was from the same refiner. While I agreed answers
were needed, I was very disappointed one of my heroes in this business jumped
to the fraud conclusion and shouted “fire” on such flimsy
“evidence”.
Within hours of that Zeal Speculator being published, the
refiner with 100% of the “duplicate” bars (Johnson Matthey UK)
released a formal letter to the World Gold Council explaining the mix
up. JMC-UK
stamped all gold bars prior to 2002 with a two-letter code and a
number. Thus a bar could have a BT 1234 serial number in 1999 while a different one had a
CT 1234 serial number in 2000. If the leading prefix was truncated, then the
same bar numbers would occur in GLD’s list even for totally different
bars. As I suspected, this was all just a dumb clerical error that was
totally meaningless in the grand scheme.
But even though this was all
cleared up a few days after his sensational essay, the prominent analyst
didn’t recant or apologize for misleading his readers. Even worse, he
didn’t disclose a huge conflict of interest that most people didn’t
consider. This man had founded a transactional paper-gold company that he
believed was directly competing with GLD for capital. He published a rumor he
knew, or should have known with 10 minutes of his own research, was totally
false. He single-handedly sparked a huge GLD selloff and a crisis of
confidence. But his motivation wasn’t truth, it was to nefariously
damage a competitor’s reputation. It was very dishonorable.
GLD Conspiracy Theorists’
Reactions.
Since conspiracy theories are so flimsy, even a modicum of research and logic
will quickly shoot most of them full of gaping holes. But instead of actually
looking at the research and thinking rationally, conspiracy theorists react
by modifying the original theory in an attempt to patch these holes. They
vehemently oppose the Occam’s Razor philosophical maxim stating that
the simplest explanation for anything is most likely the correct one. When
assumptions are multiplied beyond necessity, odds are the theory is false.
So when their theories are
challenged, they never consider the new facts or calmly debate the new
research presented. You can watch this unfold in real-time in
conspiracy-theorist haunts on the Internet once this essay is released. Without even reading
this essay, they will attack me personally rather than considering the ideas
and logic I advanced. They won’t discuss the fabrication
bottleneck, or 400oz bars, or GLD’s annual exhaustive physical audit,
or its transparency in operations, or its inarguable impact on the gold price
when it is engaging in significant buying and selling.
Instead, they’ll yell and
scream about Adam Hamilton. I’ve been one of the most tireless
champions of physical-gold investing and gold-stock speculating for a decade. My painstaking
research into what really drives the gold markets, and the resulting trades,
have made hundreds of millions (maybe billions) of dollars for our
subscribers (who include some prominent hedge-fund and mutual-fund
managers). But because I’ve chosen to believe in hard facts and
truth, not rumor, conspiracy theorists want to destroy me.
But the ironic thing about rumors
is they ultimately damage the rumormongers far more than the subjects of the
rumors. Rumormongers can fool people for a time, but eventually people
realize the rumormongers are never right, are always emotional, and are not
helping the people make profitable trades. Thus rumormongers quickly lose
credibility, forcing them to find new suckers and dupes in order to stay
afloat. Truth always prevails in the end.
If you don’t like GLD,
don’t buy it! Problem solved. But to spread false rumors
and known lies about GLD to attempt to take away freedom of choice from other
investors is the height of arrogance. I happen to loathe Asian food with a
passion, I wouldn’t eat it if I was starving to death. But I am still
happy it is available for those who enjoy it. I can always go eat a
great beef steak while they indulge in their “exotic delicacies”,
just like you can go buy physical gold coins even if someone else buys GLD
shares. Choice is good.
GLD Conspiracy Theories Bad for
Gold Psychology.
While entertaining at times, all these GLD conspiracy theories are not
harmless. Knowledgeable investors well-versed in gold can laugh at them, but
those new to gold are often scared away by them. I can’t even tell you
how many countless e-mails I’ve received in the last decade from
mainstream investors, who were interested in gold, but were hesitant to
deploy capital because some silly conspiracy theory they read on the Internet
had scared them.
These lies also make prominent
mainstream investors and speculators hesitant to speak out about being
bullish on gold. There are elite fund managers and financial analysts made
famous on CNBC who like gold, but don’t want to acknowledge it
publicly. Why? They feel they will take a credibility hit if they are lumped
in with the “crazy gold bugs”. And by that phrase, they
mean the shrill and irrational conspiracy theorists who quickly attack and
try to defame anyone who doesn’t buy their pet theories hook, line, and
sinker.
These malcontents are sabotaging
gold’s progress for all of us by falsely claiming GLD is a
fraud. By attacking mainstreamers who talk about gold, they are
attempting to silence gold evangelists who can build mainstream interest in
this gold bull. The more stock-market capital that floods into GLD, the
higher the gold price will ultimately go. Thus everyone invested in anything
gold-related or silver-related has a huge vested interest in seeing GLD continue
to grow. The more capital that flows into gold bullion, even through GLD, the
bigger and more profitable this gold bull will prove to be for all of us.
The Bottom Line. If theories cannot explain
tactical and strategic price action and lead to profitable trades, then they
are useless for anything but amusement. At Zeal we’ve dedicated
ourselves to studying the markets relentlessly to find out what is really driving them.
Then we share our findings, and resulting real-world trades, with our
subscribers so they too can profit from the fruits of our hard labors. We
have been blessed with great success pursuing this strategy. We
don’t get emotional about anything, we simply study the markets and
ride them.
For just $10 a month, you can
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today and become an informed investor!
While conspiracy theories are
entertaining, in my experience they have never helped actual trading results
and the real-time accumulation of wealth in this gold bull. And
I’ve followed them closely for a decade now, seeing many theories rise
and fall. These theories are based on rumor, not on fact. Conspiracy
theorists hold to their theories with a religious fervor, which sadly blinds
them to their own emotions and seriously hobbles their odds of proving
successful in the markets.
That being said, I’ve always
thought launching a conspiracy theory would be kind of fun. So to the brave
handful of conspiracy theorists who have read this entire essay, I have a
proposal for you. How about starting one that claims the main reason gold
isn’t trading at $1m per ounce today and making us all filthy rich is
because Martians with mind-control rays are suppressing the gold price. They
don’t want gold to be strong because the world’s fiat currencies
weaken our economies making us ripe for the upcoming Martian invasion.
NASA is hiding the truth, down with the Martian gold-price suppression!
Adam Hamilton,
CPA
Zealllc.com
November 6, 2009
Also
by Adam Hamilton
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more information.
Thoughts,
comments, or flames? Fire away at zelotes@zealllc.com.
Due to my staggering and perpetually increasing e-mail load, I regret that I
am not able to respond to comments personally. I will read all messages
though and really appreciate your feedback!
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2006 Zeal Research (www.ZealLLC.com)
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