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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
Topic Started: 3 Apr 2013, 10:29 AM (37,678 Views)
stinkbug
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Personally, I find it absolutely remarkable that anyone who 'invests' in gold wouldn't want their metal in their hot little hand. I sure as hell would.
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While it's true that those who win never quit, and those who quit never win, those who never win and never quit are idiots.

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miw
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Enjoy The Ride
24 Apr 2013, 08:16 AM
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.
ETR,

The current prospectus is a 34-page document, and you are quoting from pages 37 and 44. Obviously whatever you have there is not quoting from the prospectus.

There is some text similar (but not the same) as what you quote in the "risk factors" section around page 10.

The text you cut and pasted from somewhere is trying to suggest to you that the GLD trust's gold may be stored at a subcustodian. This is not the case. It is a misrepresentation of what a subcustodian is.

When the trust buys gold to add to its hoard, initially the gold is somewhere else. At that time, whoever is in charge of that gold is the subcustodian. But they only remain the subcustodian until the gold can be transported to the trust's vault. Furthermore, the custodian is liable for loss of gold at subcustodian premises if it can be shown that they have not made reasonable commercial efforts to have the gold transported as quickly as possible.

The first paragraph of the risk factors section on page 10, which is conveniently not quoted in your message, goes like this:

Quote:
 
Because neither the Trustee nor the Custodian oversees or monitors the activities of subcustodians
who may temporarily hold the Trust’s gold bars until transported to the Custodian’s London vault,
failure by the subcustodians to exercise due care in the safekeeping of the Trust’s gold bars could
result in a loss to the Trust.

Under the Allocated Bullion Account Agreement described in the Trust’s Annual Report on Form 10-K,
incorporated herein by reference, the Custodian agreed that it will hold all of the Trust’s gold bars in its own
vault premises except when the gold bars have been allocated in a vault other than the Custodian’s vault
premises, and in such cases the Custodian agreed that it will use commercially reasonable efforts promptly to
transport the gold bars to the Custodian’s vault, at the Custodian’s cost and risk. Nevertheless, there will be
periods of time when some portion of the Trust’s gold bars will be held by one or more subcustodians
appointed by the Custodian or by a subcustodian of such subcustodian.


In other words, the risk factor describes the standard risk you have when you buy gold bullion and take delivery. For a time, the gold is yours, but you have yet to take delivery.

Under normal circumstances, How much of the gold is in the hands of custodians, and how much is in the trust's vaults and available to be counted by the auditor?

Quote:
 
TRUST’S GOLD HOLDINGS AS OF MARCH 31, 2012
As at March 31, 2012, the Custodian held 41,366,147 ounces of gold on behalf of the Trust in its vault, 100%
of which is allocated gold in the form of London Good Delivery gold bars with a market value of
$68,771,219,436 (cost — $46,663,999,222) based on the London PM fix on March 31, 2012. Subcustodians
held nil ounces of gold in their vaults on behalf of the Trust.


An allocated account is an account with a bullion dealer, which may also be a bank, to which individually
identified gold bars owned by the account holder are credited. The gold bars in an allocated gold account are
specific to that account and are identified by a list which shows, for each gold bar, the refiner, assay or
fineness, serial number and gross and fine weight. As a result of an amendment to the Trust’s agreements with
the Custodian effective June 1, 2011, all of the Trust’s gold is fully allocated at the end of each business day.
The Custodian provides the Trustee with regular reports detailing the gold transfers in and out of the Trust’s
allocated account and identifying the gold bars held in the Trust’s allocated account. Gold held in the Trust’s
allocated account is the property of the Trust and is not traded, leased or loaned under any circumstances.


You can be 100% sure that there is none of GLD's assets in the hands of subcustodians at the moment. the GLD trust has shrunk by about 200 tonnes so far this year and is still bleeding gold onto the market. In other words, GLD's custodian (HSBC) is now everyone else's subcustodian. As of today, the total assets of the trust are 35,275,711.20 ounces, or 1,097.19 tonnes - about 190 tonnes less than they had a year ago.

The assertion that (a) the GLD trust cannot count its gold bars and (b) leases its gold out is in direct contradiction to the prospectus and 100% 99.9999 fine tinfoil-hattery.

The entire statement of assets of the GLD trust is a list of serial numbers of gold bars in its vault. No auditor would sign off on the filings if they could not at any time go into the vault and demand that a particular gold bar be produced and, if they deemed it necessary, cut it in half to see if it has any non-gold material in it. It is, of course conceivable that there is large-scale fraud being perpetrated by the trust, the custodian and the auditor in collusion. You won't find that by searching the prospectus.

It amuses me that the tinfoil-hat brigade always conveniently ignore the number one risk quoted in the risk factors section of the prospectus:

Quote:
 
The value of the Shares relates directly to the value of the gold held by the Trust and fluctuations in
the price of gold could materially adversely affect an investment in the Shares.


The Shares are designed to mirror as closely as possible the performance of the price of gold, and the value of
the Shares relates directly to the value of the gold held by the Trust, less the Trust’s liabilities (including
estimated accrued expenses). The price of gold has fluctuated widely over the past several years.
Several factors may affect the price of gold, including:

➤ Global gold supply and demand, which is influenced by such factors as forward selling by gold producers,
purchases made by gold producers to unwind gold hedge positions, central bank purchases and sales, and
production and cost levels in major gold-producing countries such as South Africa, the United States and
Australia;

➤ Global or regional political, economic or financial events and situations;
➤ Investors’ expectations with respect to the rate of inflation;
➤ Currency exchange rates;
➤Interest rates; and
➤ Investment and trading activities of hedge funds and commodity funds.

The Shares have experienced significant price fluctuations. If gold markets continue to be subject to sharp
fluctuations, this may result in potential losses if you need to sell your Shares at a time when the price of gold
is lower than it was when you made your investment. Even if you are able to hold Shares for the long-term,
you may never experience a profit, since gold markets have historically experienced extended periods of flat or
declining prices, in addition to sharp fluctuations.

In addition, investors should be aware that there is no assurance that gold will maintain its long-term value in
terms of purchasing power in the future. In the event that the price of gold declines, the Sponsor expects the
value of an investment in the Shares to decline proportionately
.


The truth will set you free. But first, it will piss you off.
--Gloria Steinem
AREPS™
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Thatguy
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Catweasel
24 Apr 2013, 12:08 AM
If the mouse feels it can happen, it feels.

It kind of like belief in a supreme being.

It doesn't know if it exist, but it feels as part of community.

So even if it the wrong, socialization will provide the narrative to explain it.
Night time reading ?

http://en.wikipedia.org/wiki/List_of_biases_in_judgment_and_decision_making
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Enjoy The Ride
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miw- The quoted text was from the S1 Prospectus filed on November 15, 2004.

The most important fact is GLD is a cash market, it is not settled in metal. HSBC will never have to produce one ounce.

Of course the Gold is there

RMBS are AAA Rated.

Libor rates are honest.

MF Global segregated accounts are firewalled.

Robosigning didn't happen..

Standard Chartered never laundered drug money.

Depositors can always withdraw their funds.

etc........





Enjoy The Ride!

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


"I, on the other hand, am a fully rounded human being with a degree from the university of life, a diploma from the school of hard knocks, and three gold stars from the kindergarten of getting the shit kicked out of me." Blackadder.


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miw
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Enjoy The Ride
24 Apr 2013, 06:54 PM
miw- The quoted text was from the S1 Prospectus filed on November 15, 2004.
Well, if you are going to quote from a document that is no longer current no longer has meaning, you probably shouldn't call it "the prospectus". Today that is just an old document, not the prospectus.

Quote:
 
The most important fact is GLD is a cash market, it is not settled in metal. HSBC will never have to produce one ounce.


Nope. That's not the point being discussed at all. It's something you brought up to deflect from the fact that your previous assertions that:

a) Gold in the GLD trust is leased out.
b) Gold in the GLD trust is normally held by subcustodians and hence cannot be audited and is in fact leased out by the subcustodians.
c) The GLD trust does not actually have the gold in its vault

are, barring outright fraud, baseless in fact.

These are insinuations commonly put about by the gold bullion spruikers who have lost a lot of their trade (and hence the lucrative bid/ask spread) from retail sales and buying of gold bullion, but the prospectus does not support the insinuations which are based on very selective quotation.

No-one ever disputed that shares in GLD are a cash market and not settled in gold, unless you are one of the actual "participants" in the GLD trust. So, guilty as charged, GLD probably does not qualify an armageddon hedge.

HSBC as the custodian most certainly does have to provide actual gold metal if in fact baskets of gold come out of the trust through redemptions and are sold to buyers who want to hold the gold somewhere else. And about 200 tonnes have come out through redemptions in the last couple of months so it is highly likely that trucks have been rolling between various secret locations in England. This (large scale redemptions from an ETF) has not happened before and means that we are in somewhat unknown territory wrt the gold market. Incidentally many copper traders are actively fighting against the establishment of a physical copper ETF because of the bad effects they say GLD and SLV have had on the PM markets. They certainly seem to add to the potential volatility of the markets, which I guess is fine if you are into silver and volatility is what you are after.

If you want to argue that outright fraud is occurring, I won't argue against you. It is after all a possibility, just as William Shakespeare and Francis Bacon being the same person, Elvis Presley being alive and well and living with Michael Jackson in Argentina, and the Moon landings having been a hoax are all possibilities. What you believe is your business and you can set your own probability on those events.

Personally I'd be far more worried about risk number one.
The truth will set you free. But first, it will piss you off.
--Gloria Steinem
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Enjoy The Ride
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miw- HSBC are the good guys pure as the driven snow. I will take the chance of another banking scandal within the next 6 months over you having lunch with Elvis.

Your earlier contention that each GLD share represents an actual 1/10oz of real,identifiable, audited, numbered, Good Delivery, LBMA Gold. Is according to the current prospectus is false.


"The amount of gold represented by the Shares will continue to be reduced during the life of the Trust
due to the sales of gold necessary to pay the Trust’s expenses irrespective of whether the trading
price of the Shares rises or falls in response to changes in the price of gold.
Each outstanding Share represents a fractional, undivided interest in the gold held by the Trust. The Trust does
not generate any income and regularly sells gold to pay for its ongoing expenses. Therefore, the amount of
gold represented by each Share has gradually declined over time."

So on a long enough timeframe the amount of gold represented by shares in GLD will be 0.

But the HSBC auditor will have a complete list of those 0 gold bars.

The history of banks and banking tells us all deposits(cash or gold) are accounted for until everyone wants theirs. I suspect GLD is no different.
Enjoy The Ride!

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


"I, on the other hand, am a fully rounded human being with a degree from the university of life, a diploma from the school of hard knocks, and three gold stars from the kindergarten of getting the shit kicked out of me." Blackadder.


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frankrider
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If you trust your money, gold or otherwise, to any bunch of faceless suits you deserve to lose it in the years to come. Leaving it in bank deposit boxes back in the 1930's proved disasterous and today the financial structure is vasty more corrupt. Most people advocating these other options are probably in the financial industry, in one form or another. They see things in light of their own position and assumed credability but the average person in the street has an entirely different view of these "financial experts" now they have seen their super smashed. They are for the most part just parasites feeding on the life savings of hard working folks.

If you don't hold it you don't own it.

Negative gearing is a form of leveraged speculation in which a speculator borrows money to buy an asset, but the income generated by that asset does not cover the interest on the loan

A negative gearing strategy can only make a profit if the asset rises so much in price that the capital gain is more than the sum of the ongoing losses over the life of the speculation. http://en.wikipedia.org/wiki/Negative_gearing
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miw
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Enjoy The Ride
24 Apr 2013, 09:26 PM
miw- HSBC are the good guys pure as the driven snow. I will take the chance of another banking scandal within the next 6 months over you having lunch with Elvis.

Your earlier contention that each GLD share represents an actual 1/10oz of real,identifiable, audited, numbered, Good Delivery, LBMA Gold. Is according to the current prospectus is false.
Correct. I found that out when I actually read the prospectus. You have to pay for storage, and rather than make everyone pay back a negative dividend (which is essentially what gold held in storage yields) they sell off up to 0.4% of the NAV in gold each year to defray storage costs. That's what gold (or any commodity, or an art collection or a watch collection, or diamonds for that matter) does - it sits there and costs you money in storage and security. It started out as 1/10 oz per share. Now after 10 years, it is more like 0.096oz.

To be clear, I am not claiming anyone is as pure as the driven snow or that there is no counterparty risk. There is always counterparty risk. In this case I would still say it is quite a bit lower than holding a yield-free, volatile asset that is mostly held for speculative purposes is in the first place. (But GLD definitely has its uses as a hedge. In last night's hack crash, GLD spiked up at exactly the same time almost everything else spiked down.)

I am just pointing out that the tinfoil hat brigade are full of shit in their assertion that the leasing of gold is somehow "allowed" under the terms of the GLD prospectus.
Edited by miw, 24 Apr 2013, 09:59 PM.
The truth will set you free. But first, it will piss you off.
--Gloria Steinem
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Pig Iron
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Bogan scum

frankrider
24 Apr 2013, 09:44 PM
If you trust your money, gold or otherwise, to any bunch of faceless suits you deserve to lose it in the years to come. Leaving it in bank deposit boxes back in the 1930's proved disasterous and today the financial structure is vasty more corrupt. Most people advocating these other options are probably in the financial industry, in one form or another. They see things in light of their own position and assumed credability but the average person in the street has an entirely different view of these "financial experts" now they have seen their super smashed. They are for the most part just parasites feeding on the life savings of hard working folks.

If you don't hold it you don't own it.
while i agree with this to an extent, what alternative is there?

holding it yourself places you are great risk of being robbed at gun point, at which point you lose it all.
I am the love child of Tony Abbott and Pauline Hanson
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miw
24 Apr 2013, 09:57 PM
Correct. I found that out when I actually read the prospectus. You have to pay for storage, and rather than make everyone pay back a negative dividend (which is essentially what gold held in storage yields) they sell off up to 0.4% of the NAV in gold each year to defray storage costs. That's what gold (or any commodity, or an art collection or a watch collection, or diamonds for that matter) does - it sits there and costs you money in storage and security. It started out as 1/10 oz per share. Now after 10 years, it is more like 0.096oz.

To be clear, I am not claiming anyone is as pure as the driven snow or that there is no counterparty risk. There is always counterparty risk. In this case I would still say it is quite a bit lower than holding a yield-free, volatile asset that is mostly held for speculative purposes is in the first place. (But GLD definitely has its uses as a hedge. In last night's hack crash, GLD spiked up at exactly the same time almost everything else spiked down.)

I am just pointing out that the tinfoil hat brigade are full of shit in their assertion that the leasing of gold is somehow "allowed" under the terms of the GLD prospectus.
miw- Off topic. the crossed or locked market which occured last night. What broke?
Enjoy The Ride!

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


"I, on the other hand, am a fully rounded human being with a degree from the university of life, a diploma from the school of hard knocks, and three gold stars from the kindergarten of getting the shit kicked out of me." Blackadder.


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