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Posted by on Jun 30, 2010 in Business, Economy, In The News, Markets, TG Roundup

GLD a conduit for physical demand into paper

Folks

Here is an excellent summary on GLD. Please be careful and read the fund’s prospectus, if you are invetsed in it. The emperor is naked.

“The Gold ETF is an excellent conduit to redirect physical demand into paper. The Gold ETF is similar to a fractional reserve bank. As long as customers don’t fear for their money, the bank can service the cash demands for a small percentage of its customers. A run on the bank develops when too many customers request their cash at once. A large ETF holder, fearing for the return of their gold, will demand delivery as stated in the prospectus at some point. If the fear spreads beyond a small group, a run on the ETF will occur. Unfortunately, unlike banks, there’s no such thing an ETF holiday, or Federal Deposit Insurance Corporation. The market price and revised investors expectations towards its holdings will be quickly discounted into the share price.”

http://edegrootinsights.blogspot.com/2010/06/gold-etf-swells-to-pass-50-billion.html

The risk of ETFs is higher.

http://ftalphaville.ft.com/blog/2009/10/08/76621/gold-etfs-caveat-emptor/

I would say even the bank vaults are not safe. Do you believe the banksters?

1 Comment

  1. Mohan June 30, 2010

    I am not endorsing buying of physical gold, or golds-stocks are ETFs. But, some central bankers are increasing their gold holdings. Business week article.
    http://www.businessweek.com/news/2010-06-30/imf-s-gold-assets-shrank-in-april-as-russia-s-rose.html

    IMF’s Gold Assets Shrank in April as Russia’s Rose
    (Updates with IMF sales details in third paragraph, analyst’s comment in fourth.)

    By Nicholas Larkin

    June 30 (Bloomberg) — The International Monetary Fund’s gold holdings fell by 15.25 metric tons (490,286 ounces) in May, according to figures from the Washington-based lender. Russia’s assets expanded by 22.46 tons.

    Reserves of gold at the IMF were 2,951.58 tons at the end of May compared with 2,966.83 tons at the end of April, data on the IMF’s website show. Russia increased holdings to 703.1 tons in May, from 680.64 tons, and has added gold every month since at least February, the data show.