|
|
1) GLD does not
allow redemptions of its gold bullion
GLD failure to allow redemptions in gold is suspicious. In fact, only two
gold ETFs worldwide allow redemptions in gold, and both of them are located
in Switzerland: Gold ETF from Zurich Kantonalbank (ZKB) and Julius Baer
(JBGOUA).
Michael Pennington makes this point effectively in his article WHY I BELIEVE THE GOLD AND SILVER ETF'S
ARE SCAMS:
“The most important aspect investing in gold and silver is to take
possession of your physical metal. When
these ETF's were created, they made it impossible for any investor to take
possession of their gold or silver. This should be a major
red flag alone.”
2) GLD created and run by untrustworthy institutions
JP Morgan, HSBC, and the rest of Wall Street’s big financial
institutions have given us:
A) A 50+ trillion credit-default-swap market (which threatens to destroy the
world’s financial system)
B) Subprime CDOs squared (taking worthless subprime loans, adding leverage,
and selling it to investors as AAA-rated security)
C) Auction rate securities (investors were sold billions of these
“as-good-as-cash” securities, and then the market for auction
rate securities collapsed last year)
D) synthetic CDOs (credit-default-swaps were sold and packaged into
investment vehicles called synthetic CDOs)
E) CPDOs (credit-default-swaps were sold, leveraged up 15 to 1, and
then packaged into investment vehicles called "constant-proportion debt
obligations")
F) CDPPs (credit-default-swaps were sold, leveraged up 80 to 1, and
then packaged into investment vehicles called "credit derivative product
companies". Read more)
Aren’t you the least bit curious what horrors these same institutions
have been doing to gold markets? Will GLD turn out to be as
“safe” as all the rest of Wall Street’s AAA-rated junk?
Michael Pennington further explains the issue:
“The gold and silver ETFs were created by such financial giants as JP
Morgan and Barclay's Bank that also serve as custodians and sub-custodians. These
are the very firms that have been involved in the process of short selling
gold and silver in huge quantities. That they would be involved in
creating the ETFs had to be considered as most unlikely unless they had
nefarious purposes.”
3) GLD's gold is located in London, where most the world's gold leasing
occurs.
If GLD wanted to inspire confidence in its gold holdings, it choose the wrong
location to store its gold. London has a historic role as the market of
choice for central banks' efforts to suppress gold prices. The fact that much
of the world's gold leasing occurs in London only adds to the uncertainty
around GLD. From the SPDR Gold Shares Prospectus:
allocateD
GolD: The Trust’s
allocated gold bullion is kept in the form of London Good Delivery bars (400
oz.) and held in an allocated account.
Storage: The
gold bullion is held by the Custodian, HSBC Bank USA, in its London vault or
in the vaults of sub-custodians.
4) Reading the Prospectus shows how GLD is loaded with counter-party
risks.
I recommend GLD investors re-read its perspectus, as the ETFs loose legal
framework and counterparty risks are clearly outlined. The SPDR Gold Shares Prospectus
states that GLD ”is subject to a number of risks and uncertainties,
including, but not limited to:”
- fluctuations
in the price of gold;
- reductions
in the amount of gold represented by each Share due to the payment of
Trust expenses and the impact of the termination of the fee reduction
under the Trust Indenture;
- purchasing
activity in the gold market associated with the purchase of Baskets from
the Trust;
- the lack of
experience of the Sponsor and its management in operating an investment
vehicle such as the Trust; unanticipated operational or trading problems;
- the lack of
protections associated with ownership of shares in an investment company
registered under the Investment Company Act of 1940 or the protections
afforded by the Commodity Exchange Act of 1936;
- the lack of
a market for the Shares;
- the level of
support from the World Gold Council;
- competition
from other methods of investing in gold;
- the impact
of large-scale distress sales of gold in times of crisis;
- the impact
of substantial sales of gold by the official sector; the effect of a
widening of interest rate differentials between the cost of money and
the cost of gold;
- the loss,
damage, theft or restrictions on access to the Trust’s gold; [restrictions?]
- the lack of
adequate sources of recovery if the Trust’s gold is lost, damaged,
stolen or destroyed, including a lack of insurance;
- the failure
of gold bullion allocated to the Trust to meet the London Good Delivery
Standards;
- the failure
of sub-custodians to exercise due care in the safekeeping of the
Trust’s gold; [ie: leasing out gold (which is allowed per
perspectus)]
- the limited
ability of the Trustee and the Custodian to take legal action against
sub-custodians; [GLD is designed to protect sub-custodians from the
legal action which losses on their gold leasing activity would trigger]
- the
insolvency of the Custodian; [As noted in GLD’s prospectus, we
know “Gold held in the Trust’s unallocated gold account and
any Authorized Participant’s unallocated gold account will not be
segregated from the Custodian’s assets. If the Custodian becomes insolvent,
its assets may not be adequate to satisfy a claim by the Trust or any
Authorized Participant.]
- the
Trust’s obligation to reimburse the Purchaser and the Market Agent
for certain liabilities in the event the Sponsor fails to indemnify them;
- competing
claims over ownership of intellectual property rights related to the
Trust;
- other
factors identified in the “Risk Factors” section of the
Prospectus filed with the SEC and in other filings made by the Trust
from time to time with the SEC.
5) GLD’s gold
is not audited
As an accountant, I find the lack of audits of GLD’s gold bullion
inexcusable. How are we supposed to know the gold is actually there?
6) GLD can be sold short
Allowing GLD to be sold short dilutes the gold-backing of each ishares. Also,
when GLD is sold short, it undermines the arbitrage process on which all ETFs
are based (see how an exchange-traded fund works).
Michael Pennington explains:
The SEC allows shorting selling of these funds which is a fraud itself.
So is naked short selling which will be rampant in any commodity-based scam
like this. Currently, there are over 10 million shares short in GLD
[it’s now 14 million] and this does not count the naked shorts since
they are not required to declare. That means that there are at least
10 million shares owned by longs which have no physical gold backing them in
the vaults of the GLD custodian.
7) GLD is at risk of confiscation
Metals bought from the government-backed financial institutions have an
especially high risk of confiscation.
8) GLD is used to sell gold futures
To add insult to injury, GLD ishares are used to sell gold futures and drive
down the price of gold. Investor Village explains about this practice:
bullion separately may be deposited and redeemed by "Authorized
Participants" for Ishares that never even reached the Retail Market.
There is no trust requirement for an Authorized Participant (read specified
Bullion Banks and most likely friends) to even sell the ishares (GLD)
(received on deposit) into the Ishare market. The Prospectus specifically
states that.
Significantly, the depositors ("Authorized Participants") have
the alternative of using the Ishares (GLD) as collateral for setting up a
spread at the COMEX, by selling Gold futures short against the Ishares they
hold.
Such gives the bullion depositor ("Authorized Participant") the
ability to make profit at a "Commodity" taxable rate rather than a
higher "collectible" tax rate, which was adjudged to be
applicable to GLD. The Prospectus specifically acknowledges that the
Authorized Participants may be engaged in bullion trade and have trading
desks.
As to the question of whether the gold will be there, the lingering doubt of
the potential for "double counting" may exist.
In other words, “Authorized Participants” can deposit gold with
GLD’s custodian (where it is leased out) and then use GLD ishares to
sell gold futures (at an attractive tax rate).
9) GLD has never had storage issues
When the gold holdings of Zuercher Kantonalbank’s ZKB Gold ETF reached
just 75 tons, the Zurich-based bank was forced to look for more gold storage
space because its vaults were full. Straight Stocks report about this lack of gold storage space:
“Zuercher Kantonalbank, the Swiss
lender that manages about $107 billion, said its gold vault is full after a
surge in demand from investors seeking a haven during the credit crunch.
Assets in the Zurich-based bank’s ZKB Gold ETF, backed by about 2.66
million ounces of the metal, have risen to a record for seven consecutive
weeks. That amount of gold is worth about $2.25 billion at today’s
prices and equal to about 12 days of global production.
“Demand is so strong,” Susanne Toren, a metals analyst at the
bank, said by telephone from Zurich today. “Our vaults are full right up to the
top.”
Investors are buying gold coins and bars, and exchange- traded funds backed
by physical metal, after banks including Lehman Brothers Holdings Inc.
collapsed. Assets in SPDR Gold Trust, the largest ETF backed by bullion,
advanced to a record 770.64 tons (24.78 million ounces) on Oct. 10.
Zuercher Kantonalbank, which is owned by the Canton of Zurich, also manages
funds for silver, platinum, and palladium. Sibylle Umiker, a spokeswoman
for the bank in Zurich, confirmed the vault is full and said the company
“is looking for more space in Switzerland.”
In contrast to the swiss ETF, GLD has accumulated over 1000 Tonnes of gold
without ever experiencing storage problems.
10) Where does GLD get its bullion?
Similarly to the storage issue, there is little evidence of GLD’s
supposedly massive gold purchases in the physical gold market. As a result, I
share GATA concerns over where the gold ETFs get their bullion:
The
failure to unearth the Madoff scandal earlier becomes incredible when one
understands that the returns from the market that were claimed on the size of
the hedge fund were logically impossible.
The same reasoning screams bloody murder when applied to the many gold
EFTs in terms of what it is they really own.
This raises a major question: From where did all the gold claimed to be owned
by all the gold ETFs come from?
Where did funds such as GLD get their additional 45 tons in the last
month?
We certainly can forget about that gold coming from the Comex. Twelve
deliveries would stand out like a sore thumb.
Record keeping eliminates all exchanges around the globe as the source of
bullion in any size to all the gold ETFs.
The physical market is so tight that coin minting has all but closed down
compared to what it was one year ago. It is hard to accept that the gold EFTs
can buy what the mints can't.
Conclusion: The central point to owning gold is safety, and GLD is not
safe. The only gold ETFs I recommend are those in Switzerland which are
redeemable for physical gold.
Eric
de Carbonnel
Market Skeptics
Support Market Skeptics with a donation :
please click
here
Also
by Eric de Carbonnel
| |
