Gold price dives through support to new low. Gold Bubble continues to deflate.; Gold price to drop another 15% this year say strategists at Societe Generale
Tweet Topic Started: 3 Apr 2013, 10:29 AM (37,679 Views)
One of the wildcard factors we haven't dealt with before in a gold bear market is the GLD ETF. This ETF isn't your father's paper gold. It is backed by actual physical gold in a vault in London.
No, they loan the gold to the market at a profit. The rate is the libor rate added to the lease rate you see advertised on kitco. The interest is in gold itself rather than fiat. Nothing necessarily wrong with that as long as the counter-parties are quality. The problem is they charge you fee when they really should be giving you a share of the profits. The Jewelers borrow gold, fabricate and pay back the loan when the product is sold. Much of the payment is incoming scrapped gold jewelry. For example the FED claims to have the 8,130 tonnes on loan from the US treasury. But the vast majority is leased out to Wall Street. At any one time there is only about 400 tonnes of it is actually in the vaults.
No, they loan the gold to the market at a profit. The rate is the libor rate added to the lease rate you see advertised on kitco. The interest is in gold itself rather than fiat. Nothing necessarily wrong with that as long as the counter-parties are quality. The problem is they charge you fee when they really should be giving you a share of the profits. The Jewelers borrow gold, fabricate and pay back the loan when the product is sold. Much of the payment is incoming scrapped gold jewelry. For example the FED claims to have the 8,130 tonnes on loan from the US treasury. But the vast majority is leased out to Wall Street. At any one time there is only about 400 tonnes of it is actually in the vaults.
(a)Irrelevant. GLD's holdings have dropped from 1325 tonnes to 1125 tonnes since the middle of February. That's an amount equivalent to nearly half 2012 CB buying in 2 months. That is pallets of actual physical gold that used to belong to the GLD ETF that is now HSBC's problem.
(b) Wrong Furthermore, for the GLD trust to lease its gold would, as far as I can see, be a violation of its prospectus which states that the trust's NAV will at any given moment be in either (a) cash (b) unallocated gold still belonging to the custodian due to pending transaction (c) physical gold bars sitting in the London vault to which the trust has full legal title at all times. (allocated account). Specifically:
Quote:
Gold held in the Trust’s allocated account is the property of the Trust and is not traded, leased or loaned under any circumstances.
The NAV is calculated and reported daily using either the London afternoon fix, or on days when that is not available, the most recent available London fix.
It's a topic worth looking at because in the past, even when the price of gold has been falling, the GLD trust has mostly been a nett buyer of gold and this is by far the biggest and fastest redemption they have suffered. It's unclear what effect this will have, but it is probably safe to say that over the last couple of months the GLD ETF has been a nett drag on the price of gold rather than the tailwind it has been in the past. Also, since the gold simply moves to the custodian when redeemed and we don't know exactly what they do with it in what timeframe, it is unclear what lag there is involved. from: Do More Gold ETF Outflows Mean Even Lower Gold Prices Ahead?
It wasn't supposed to work this way. The bullish argument behind gold made so much sense. As the world's central banks ballooned their balance sheets, inflation was sure to take off. And as the government ran trillion-dollar deficits, confidence in the dollar was sure to go up in smoke.
Inflation has remained in check across the world. In the US, where quantitative easing has been most sustained (and some might suggest, profligate) the Consumer Price Index has increased at an average annual rate of 1.87 per cent since 2008. That's almost half the average level after World War II.
It turns out that the vast majority of the new cash the US Federal Reserve printed never really left the Fed at all, as banks kept it parked in excess reserves. And the US federal budget deficit has been nearly cut in half as a percentage of GDP. People still talk about "trillion-dollar deficits as far as the eye can see" without realising that no such forecast exists. US government debt as a percentage of GDP is on track to fall over the next decade.
Then there are rumours that the Fed will cut its quantitative easing within a few months. "I expect we will meet the test for substantial improvement in the outlook for the labour market by this summer," said San Francisco Fed president John Williams last week. "If that happens, we could start tapering our purchases then. If all goes as hoped, we could end the purchase program sometime late this year." This would have been unthinkable just a month ago.
To boot, gold purchases by central banks have long been cited as a bullish catalyst. But now fears are swirling that the central bank of Cyprus will be forced to dump its gold to finance an international bailout. If Cyprus, who else? Portugal? Spain? Italy?
The irony is that the goldbugs may get the story right but the investment wrong. Like any asset, gold is forward-looking and prone to wild overreactions. So prices doesn't always mesh with what's going on in the economy.
Inflation in the 1980s averaged nearly 6 pe cent - triple current levels - and gold lost more than half its nominal value. It is entirely possible that the coming years will bring high inflation, but tumbling gold prices. Just as the internet blossomed while the Nasdaq plunged from its high in 2000, asset prices can gallop far away from the stories people buy into them for. Indeed, they usually do.
Historically, gold has surprisingly little correlation with inflation. As one Citigroup research report put it: "There is no obvious relationship between the gold price and inflation." Instead, gold correlates fairly well with two events: negative real interest rates and financial panic.
But if the economy is healing, as many think it is, real interest rates are likely to rise. And as the Cyprus bailout showed last month, markets appear to be well past the panic stages of the financial crisis. One interpretation is gold's fall is the shift in how investors perceive risk - away from a world obsessed with panic and collapse towards one focused on long-term growth.
For those in gold for the long haul, that should be unsettling. Over time, gold's real return averages close to zero.
(a)Irrelevant. GLD's holdings have dropped from 1325 tonnes to 1125 tonnes since the middle of February. That's an amount equivalent to nearly half 2012 CB buying in 2 months. That is pallets of actual physical gold that used to belong to the GLD ETF that is now HSBC's problem.
(b) Wrong Furthermore, for the GLD trust to lease its gold would, as far as I can see, be a violation of its prospectus which states that the trust's NAV will at any given moment be in either (a) cash (b) unallocated gold still belonging to the custodian due to pending transaction (c) physical gold bars sitting in the London vault to which the trust has full legal title at all times. (allocated account). Specifically:
The NAV is calculated and reported daily using either the London afternoon fix, or on days when that is not available, the most recent available London fix.
Perth Mint says the same thing. However for a few months they banned gold redemptions during the GFC. Obviously they didn't have the "allocated" gold. However the Perth Mint is the only Government guaranteed public bullion scheme in the world. If GLD goes bust you'll be just creditor to a few individuals. What they say and what they do are two different things.
The next trick of our glorious banks will be to charge us a fee for using net bank!!! You are no longer customer, you are property!!!
Perth Mint says the same thing. However for a few months they banned gold redemptions during the GFC. Obviously they didn't have the "allocated" gold. However the Perth Mint is the only Government guaranteed public bullion scheme in the world. If GLD goes bust you'll be just creditor to a few individuals. What they say and what they do are two different things.
So you are saying the auditor who goes in and counts the bars of gold every year is lying as well?
It would be hard to hide it if you were leasing out the gold as well.
Seriously you need a bit more evidence than a twinge in your tinfoil hat.
The truth will set you free. But first, it will piss you off. --Gloria Steinem AREPS™
So you are saying the auditor who goes in and counts the bars of gold every year is lying as well?
It would be hard to hide it if you were leasing out the gold as well.
Seriously you need a bit more evidence than a twinge in your tinfoil hat.
miw- No tinfoil hattery required, it's all in the prospectus.
"The Custodian is required to use reasonable care in selecting subcustodians, but otherwise has no responsibility in relation to the subcustodians appointed by it, and the Custodian is not responsible for their selection of further subcustodians. The Custodian does not undertake to monitor the performance by subcustodians of their custody functions or their selection of additional subcustodians. The Custodian is not responsible for the actions or inactions of subcustodians (p. 44)"
"In addition, the Trustee has no right to visit the premises of any subcustodian for the purposes of examining the Trust's gold or any records maintained by the subcustodian, and no subcustodian is obligated to cooperate in any review the Trustee may wish to conduct of the facilities, procedures, records or creditworthiness of such subcustodian." (p.37)
"because neither the Trustee nor the Custodian oversees or monitors the activities of subcustodians who may hold the Trust's gold, failure by the subcustodians to exercise due care in the safekeeping of the Trust's gold could result in a loss to the Trust.” (p. 12).
Now lets guess who the subcustodians are!
Bank of England, The Bank of Nova Scotia (ScotiaMocatta), Deutsche Bank AG, JPMorgan Chase Bank, and UBS AG (p. 47).
Must be a coincidence these banks also LEASE gold.
So basically Gold holdings deposited with the subcustodians (Gold easing banks) are never audited and GLD takes no responsibility for the Gold deposited with them and any claims on this Gold.
So your saying if you buy GLD the Gold must be there right! I have this bridge you may be interested in.
The case for individual freedom rests chiefly on the recognition of the inevitable and universal ignorance of all of us concerning a great many of the factors on which the achievement of our ends and welfare depend. It is because every individual knows so little and, in particular, because we rarely know which of us knows best that we trust the independent and competitive efforts of many to induce the emergence of what we shall want when we see it. Humiliating to human pride as it may be, we must recognize that the advance and even the preservation of civilization are dependent upon a maximum of opportunity for accidents to happen.” ― Friedrich A. von Hayek
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