GLD "paper gold" and SLV "paper silver" Danger

7 posts / 0 new
Last post
radiance's picture
radiance
Status: Silver Member (Offline)
Joined: Oct 11 2008
Posts: 112
GLD "paper gold" and SLV "paper silver" Danger

Those who own or are thinking of owning GLD or SLV both exchange traded funds "ETF" should way the astounding risk built into the contract you are signing!

Ron Fink

 

http://www.runtogold.com/2008/12/a-problem-with-gld-and-slv-etfs/

wdstk46's picture
wdstk46
Status: Bronze Member (Offline)
Joined: Nov 17 2008
Posts: 59
Re: GLD "paper gold" and SLV "paper silver" Danger

The article on RunToGold.com was written by someone who is not familiar with financial terminology or even the common terminology used in the gold markets.  Many of the headings are taken completely out of context and most are badly misinterpreted.  I would read the prospectus for myself before relying on this terribly flawed analysis.  The most egregious comment I found was that a bar with a fineness less than .999 is composed of an element not reflected in the periodic table as gold.  That isn't just wrong, it betrays a massive ignorance of the subject matter.

I have never recommended GLD because it is one step (maybe two) removed from physical ownership.  It is an excellent vehicle for trading purposes but not for long-term buy and hold.  For that, nothing beats owning the real thing.  The best options are coins held in your personal possession or a storage account with someone like GoldMoney or BullionVault.

radiance's picture
radiance
Status: Silver Member (Offline)
Joined: Oct 11 2008
Posts: 112
Re: GLD "paper gold" and SLV "paper silver" Danger

WDSTK46 states:

"The most egregious comment I found was that a bar with a fineness less
than .999 is composed of an element not reflected in the periodic table
as gold."

Please advise where you find the above comment and that somehow, even if true, it castigates his entire thesis.

 "Many of the headings are taken completely out of context and most are badly misinterpreted"

Please help me by explaining the flawed headings, such as: quality of gold,  counter party risk, conflict of interest and accomplices to central bank gold price suppression scheme. Apparently the headings stand alone to condemn the author. I am not as bright as I would like to be, I really am clueless about the headings; please advise. Maybe you mean something else entirely by headings. I just might be showing how dumb I can be.

"The article on RunToGold.com was written by someone who is not familiar
with financial terminology or even the common terminology used in the
gold markets."

The attorney author quoted extensively from the prospectus. He then presented some rationals about the quotes. Therefore in order to raise your critique above the level of merely bad mouthing "except for the one comment you allege is the coup de grace" of his command of financial and gold market terminology and his legal take on the prospectus. Please at your convenience elevate your critique to specific points of contention, redeem yourself and educate us all. 

Thank you in advance for your time,

 Ron Fink

wdstk46's picture
wdstk46
Status: Bronze Member (Offline)
Joined: Nov 17 2008
Posts: 59
Re: GLD "paper gold" and SLV "paper silver" Danger

Hi Ron,

Glad too.  Here is one statement that I critiqued earlier:

Trace Mayer wrote:

There is no assurance that the ‘gold’ held in the ETFs is actually the same gold as defined under the periodic table

That is a ridiculous statement.  Fineness is the ratio of pure gold to alloy in a particular piece.  It has nothing to do with "gold as defined in the periodic table".  That statement alone should put you on guard.

Here's another concerning "out of context" statements.  The author states that this part of the Prospectus refers to gold quality (fineness):

Prospectus wrote:

In issuing Baskets, the Trustee relies on certain information received from the Custodian which is subject to confirmation after the Trustee has relied on the information.  If such information turns out to be incorrect, Baskets may be issued in exchange for an amount of gold which is more or less than the amount of gold which is required to be deposited with the Trust.

The statement, however, refers to the amount of gold delivered in the basket, not the quality.  If you read the next paragraph in the prospectus it explains that accounting is only done at the end of the day and amounts during the day may be greater or less than stated.  If such errors occur during the day they are corrected at the end of the day.  He obviously never read the entire statement.  He just "cherry picked" possible damaging statements and ripped them from their context.

It goes on and on.  I am not going to reprint and critique the entire article here.  The best solution is, as I previously stated, is to read the prospectus for yourself.  I did so before I ever considered investing in GLD.  The problem I had was a potential lack of oversight of the sub-custodians.

James Turk of GoldMoney did a very deep analysis of the prospectus prior to the start of trading.  You may be able to find an archived version.  He was highly skeptical and ended with similar concerns to mine regarding sub-custodians but nothing like what the author of the article found.  Mr. Turk is not an attorney but he is widely recognized as an expert in the gold markets.

A degree in law gives does not grant expertise in the financial field (Congress is a perfect example).   I have had over 30 years experience in the field as a trader, broker, the owner of a brokerage firm and a CTA.  I hope you will grant me credit for some level of expertise.

radiance's picture
radiance
Status: Silver Member (Offline)
Joined: Oct 11 2008
Posts: 112
Re: GLD "paper gold" and SLV "paper silver" Danger

Credit humbly granted. I can now appreciate your expertise, not so much by citation of your credentials but by cogently critiquing the author. For such I am grateful. Regarding reading the GLD prospectus do you think more than 1% could accurately understand the language? I think, not. And thanks for pointing to James Turk's take on GLD.

Thanks again,

Ron Fink

 

wdstk46's picture
wdstk46
Status: Bronze Member (Offline)
Joined: Nov 17 2008
Posts: 59
Re: GLD "paper gold" and SLV "paper silver" Danger

Hi Ron,

I think we are in full agreement here.   Prospectuses are notoriously vague and convoluted.  This one is not as bad as some but given its length and dryness, I doubt that 1% would ever make it past the 2nd page.

Jim 

DrKrbyLuv's picture
DrKrbyLuv
Status: Diamond Member (Offline)
Joined: Aug 10 2008
Posts: 1995
Thanks for the heads up

The Comex deadline to produce much back-owed gold will be expiring at the close of the year. I don't think anyone can say with certainty that they will be able to deliver in full. You make an interesting point that this could affect other "paper gold" markets, it could start a stampede to move away from paper gold and gold futures.

Like many here, I own allocated gold and silver - but have also owned ETF and have not been disappointed by the results. But, I think we have come to the point where we should be seeking safe havens more than speculating.   

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Login or Register to post comments