This Precious Metals Wrap-Up is inspired by and dedicated to Ed Steer, of Casey Research.
Mr. Steer continues to work relentlessly, keeping the public informed on important matters around the globe & on all things related to precious metals. A subscription to his publication, Gold & Silver Daily is available, free of charge, to anyone wishing to be enlightened on a daily basis.
OunceOfSilver has added some tools for precious metals investors. These tools allow for the analysis of historical data in order to help determine opportune times to buy gold, silver, platinum and palladium.
Analyze specific trends in precious metal ETFs using Historical ETF Data. This tool allows inspection of historical share price, share value, net asset values, daily trading volumes, outstanding shares and even total ounces of metal held in trust. Compare both open and closed ended funds – GLD, SLV, SGOL, SIVR, PHYS, PSLV and CEF against each other.
Get historical data on precious metal spot prices in the Futures markets. View the open, high, low & closing prices individually or view with candlestick chart. Also get current and historical performance perspectives of technical trading indicators based on daily Moving Averages and other Technical Analysis techniques.
The US Mint reports its monthly sales to authorized dealers of Silver Eagle, Gold Eagle & Gold Buffalo bullion coins. This utility allows one to get a visual perspective on the daily, monthly or annual trends in physical bullion consumption. View by overall ounces or coins dispensed.
See the changes in the inventories of some of the most popular retail bullion dealers and gain perspective on the public’s buying & selling activity in the precious metals arena. Analyze data by precious metal (Gold, Silver, Platinum or Palladium), coin type (Eagle, Buffalo, Philharmonic, Maple Leaf, Panda, Libertad, etc.) or analyze availability of bullion in bar form. View results by total ounces, total coins or total bars.
Sprott Asset Management has issued a Gold Alert, showing six “key developments in the physical gold market” in the past couple weeks which indicate that there is strong demand for precious metals at these levels. One of those developments is the huge increases of Hong Kong gold exports to China.
After the precious metals were hit hard after reaching a high of $1920/ounce on September 6, 2011, the market has been in a mini-bear mode ever since. The fundamentals for high precious metals prices were still in place and indeed they are even stronger today. So, what caused the rout?
Through other reading on the net, I got word that Clive Maund had successfully called the price decline in advance for his subscribers. I had also heard that he had previously correctly predicted the May 1, 2011 silver smack down. I thought perhaps my negative judgements on technical analysis were premature and that maybe I could learn something from this prospective sage.
So I decided to try his service.
After signing up, he did correctly call the bottom and advised his subscribers to get out of their short positions at pretty much the perfect time. However, since then, Clive’s success rate reveals that he’s no sage – indeed, he and his unwitting subscribers are more likely the poor stooges on which the commercial players are feeding.
Admittedly, the markets since September, 2011 have been difficult, especially for buy-and-hold investors. Volatility has been extreme and it’s been a trader’s market, if anything. The problem for Clive’s subscribers is that he changes his mind frequently and it’s not always clear whether new positions are in addition to or instead of older positions. When the trade goes bad, he’s rather silent, even leaving his subscribers in the dark. But when a call ends up to be correct, he’s quick to advertise. In fact, sometimes he advertises his calls in reports available to the general public, usually when subscribers already have their positions in place, but not always. Specifically, more than one time he has reversed a decision and went public immediately, before subscribers were able to get out of their positions, leaving them potentially exposed to opposing actions by public readers of his report.
A good example of silence after a bad call was Clive’s alert on the natural gas sector in the beginning of February 2012. His charts showed a major reversal coming in the sector and advised subscribers “buy aggressively.” To be fair, the report advised that stop-losses be set “directly below support” shown on the chart. Still, after recommending buying natural gas along with specific investments in GaStar Exploration (GST), United States Natural Gas Fund (USNG), and ProShares Ultra DJ-UBS Natural Gas ETF (BOIL), when the market went the opposite direction almost immediately, not one word from Clive to subscribers went out. He assumes his subscribers’ stop-losses were set and gives no further report on what happened or why his original analysis was incorrect.
If Clive has a gift, I would guess that it lies in reading charts and converting that analysis into some technical perspective. But he doesn’t stick to that technical analysis alone – he utilizes the emotional economic backdrop of the European/American crisis to justify his chart analysis. In fact, his alerts to subscribers frequently portray the same scary themes one would expect from free services such as Bloomberg or ZeroHedge.
With all the problems in Europe at present, Clive’s calls have been echoing all the terror evident in the blogosphere. The emotion has run high in his reports on the precious metals markets. Twice in less than a month starting at the end of May 2012, in his effort to show an imminent price explosion to the upside for precious metals, he’s used the term “This is it!” His advice was to go long on GLD and SLV call options and even the 2X and 3X silver vehicles like AGQ and USLV. Unfortunately, both times the prices went the other direction, causing him to send out a warning on possible price declines even further. And worse for his paid subscribers, his last warning was open to the general public – again making it even more difficult for subscribers to get out of their positions with minimal losses. Just what are subscribers paying for, anyway?
Now, stepping back and looking at Clive’s technical analysis over the past 8 months, I have to wonder if chartists like Clive and their subscriber-sheep are really the patsies that the commercial traders have been fleecing in their market manipulations. When the simple folk invest in 2X and 3X gold and silver ETF vehicles, or take options positions in GLD or SLV, just who is taking the opposite side of those investments? Could it be the same small and large speculators in the commodities futures/options markets that always seem to get fleeced by the commercial institutions?
According to Ted Butler, who’s been studying the commodity futures/options Commitment of Traders (COT) reports for more than 30 years, commercial traders manipulate the market against the small and large technical traders whenever they smell blood – that is, when the commercials have a net short position and the the technical funds have a net long position. They ‘manage’ the market lower and trigger the technical funds’ stop-losses forcing even lower prices as the technical funds sell their positions. The commercial traders easily soak up all these contracts at a profit on their short positions.
Could it be that those small and large speculators are selling equities and options in the stock markets to the sheep, then taking the proceeds and buying commodity futures contracts with leverage? Under this scenario, it’s the sheep, not the small and large commodity futures speculators that end up being fleeced – they’re only ‘betting’ the money they got from the sheep. But if the sheep end up making money, the small and large commodity speculators make even more money because they have leverage on their futures positions. So that’s the motivation for the small and large speculators to keep coming back for more in the rigged futures markets – they’ve got nothing to lose and much to gain. It’s the sheep that always end up losing.
The prices of precious metals are currently set in these commodities futures markets. It is a paper contract that is traded, NOT the physical metal. This ‘mechanism’ cannot last forever. At some point, the physical metal will become too scarce.
Conclusion: It would be much better if the sheep stopped following the advice of clowns like Clive, using paper vehicles to trade in the precious metals markets. Instead of buying ETFs like GLD, SLV, USLV, AGQ, or worse buying commodity futures/options contracts with leverage, investors should go out and buy the physical metals. When the physical metals are no longer available in the marketplace, the prices will have nowhere to go but up! Until this happens, the commercials and trading institutions will continue to reap most of the paper profits.
Every day, more investors are becoming aware of the suppression of precious metals prices in the futures and options markets. It’s a serious issue and needs careful consideration. The following updates to this issue are posted in an effort to keep a historical record and to allow the reader an intial place to start in his/her own research.
April 29, 2019
Sudden illness claims the life of Bart Chilton at the age of 58.
Just weeks before his death, Chilton confirmed many things which have been proclaimed by the likes of Ted Butler and others regarding the manipulation of silver and other commodities. The following is an interview by Chris Marcus at Arcadia Economics:
Jim Rickards, author of the book, The Death of Money, gives a terrific overview of all the tools available to those who manipulate the gold market. He also reviews the strategy of the central banks and why the Fed ultimately wants a weaker dollar and why China would prefer, at least for the time being, lower gold prices. This is a MUST LISTEN interview with Anglo Far-East and the audio file can be found here.
More evidence from the past that those in high places wish to control the price of gold comes from a staff meeting of the former Secretary of State, Henry Kissinger in 1974. The discussion centers on how to go about the demonetization of gold in order to prevent Europeans, especially Western Europe, which has a higher concentration of gold holdings than the US, from using their gold to settle accounts and generate reserves, thereby undermining the dominant position of the US dollar. Read more at LibertyBlitzkrieg.com.
A careful and thorough reading of the CFTC’s announcement will reveal that nowhere is it stated that they did not find evidence of manipulation. The announcement only describes their exhaustive investigation, with over 7,000 staff hours spent on the case. The fact that their conclusion doesn’t state any specific finding, but rather only declares that no “enforcement action” will be executed “based upon the law and evidence as they exist at this time” is very revealing. As Chris Powell of GATA explains in this KWN interview, the US government under the Exchange Stabilization Fund Statute, the Gold Reserve Act of 1934, has legal authority to interfere in the precious metals or any other markets. So if manipulation was found to be occurring because of government intervention, the CFTC would be unable to bring any charges against the US government or any of the parties the government was using to carry out such activities.
September 24, 2013
Max Keiser interviews Andrew Maguire, who has gone public with information indicating that the CFTC was given more evidence of gold and silver market manipulation in June of 2012 from two more whistle blowers. And allegedly, these whistle blowers were blowing from the depths of the beast – they were both JP Morgan employees. (Maguire’s interview starts at the 12:30 mark.)
March 14, 2013
Chris Powell of GATA on CNBC Asia continues to explain GATA’s allegations of western central bank suppression of gold prices via leasing and swap arrangments.
December 18, 2012
Serving as a brief review of many of the issues already documented on this page, Lauren Lyster interviews GATA’s Bill Murphy & Chris Powell.
November 14, 2012
Bart Chilton is interviewed on RT, where he admits to seeing one participant in the silver market hold a 30% concentrated position. Of course, although he doesn’t explicitly state the nature of this position, it should be noted that it is a short position that trader held. When the Hunt Brothers were charged with a manipulative position of the silver market in 1980, it was only a 20% position, but it was on the long side.
The fact that not only precious metals markets, but most all markets are potentially rigged – and legally, due to the Gold Reserve Act providing the Exchange Stabilization Fund, managed by the US Treasury, with the ability to secretly intervene in any financial market, while being exempt from congressional oversight and questioning.
The debasement of US coinage in 1965 and President Johnson’s warning to potential hoarders of silver.
The selling and leasing practices of western central banks.
German government concern regarding its own central bank’s gold transactions as well as its practice of storing the national gold reserves abroad at the Bank of England, Bank of New York and Bank of France, where its likely that the gold has been used in swap and/or leasing schemes to help keep the price controlled.
GATA’s never-ending battle to obtain information (using FOIA) regarding gold transactions by the Fed and US Treasury.
The article has many valuable and interesting links, supporting central banking intervention in the precious metals markets.
October 13, 2012
In the following video, Lars Schall interviews Dimitri Speck, author of the German-language book “Geheime Goldpolitik” (“Secret Gold Policy”). Dimitri summarizes the history of the price capping schemes the central banks have undertaken in the gold and silver markets since 1993.
September 24, 2012
Here’s an article over at the International Man site by Jeff Thomas. The article gives a somewhat simplified overview of how banks control the price of gold as well as a likely scenario of what will happen when more people start seeking physical bullion and avoid its paper derivatives (i.e. ETFs & pooled accounts) as they realize there isn’t enough physical to go around. This, combined with the comments section, provides for an interesting read.
September 6, 2012
Bill Murphy (GATA) and Lauren Lyster (RT) review recent developments in the ongoing precious metals price suppression activities and the investigation by the CFTC. See this page for more information.
Dimitri Speck has done some investigative research into the $22 gold price plunge on June 7, 2012 using the COMEX’s own trading records. He published his findings over at Safehaven.com, which reveal that the price was smashed in less than a second at 9:21 PM at the 20-second mark. Only High Frequency Trading (HFT) algorithms could accomplish such a feat. The price was thereafter suppressed for a couple hours, allowing the financial institution(s)’ employing the HFT technology to reap quick profits. “This was a well-defined incident in thin trading, limited to a short time period and to a single market. These conditions make it ideal for a successful investigation by the regulatory authorities.“
August 7, 2012
Lauren Lyster of RT interviews Chris Powell of GATA regarding the Fed’s surreptitious suppression of the gold (and silver) price. The discussion yields a good understanding of the situation. Powell reminds the audience that in 1965, President Johnson, as he signed the Coinage Act of 1965, warned silver investors not to invest in silver – not to drive the price up – because the US government would dis-hoard from its strategic silver stockpile to rig the silver price. (See actual remarks of silver hoarding by President Johnson here.) So, since 1965, the US government has pledged to rig the silver market. Another astonishing fact conveyed during the interview is the establishment and use of the ESF (Exchange Stabilization Fund) in order to trade (intervene) in any market the Treasury chooses. Only the President and the Treasury Secretary have the legal authority to control and have knowledge of the activities of the ESF and it is exempt from any inquiries including immunity from any efforts based on the Freedom of Information Act.
July 30, 2012
Back in September of 2009, Zero Hedge claimed that this conspiracy revolving around gold price suppression was “no longer a theory, … merely sad.“ The evidence Zero Hedge uncovered, the smoking gun, was a memo written in 1975 by then Chairman of the Fed, Arthur Burns. The memo was addressed to President Ford and outlined a disagreement between Fed policy and U.S. Treasury Policy on the issue of whether or not central banks of the world should be free to buy gold from one another at market prices. Even back then, in 1975, the official price of gold was $42.22/ounce, but market prices had been trading between $160 and $175. The Treasury was apparently open to such free market activity, but the Fed was opposed. The Fed’s position was further clarified: Every country should have limits (ceilings) on their individual gold holdings. The reasoning the Fed gave for their position was four-fold:
There was no urgency to allow free market activity on the gold price to support central bank balance sheets because countries had relatively easy access to “borrowing facilities” or could even sell their gold or use it as collateral for loans.
The gold issue should not be discussed separately. The “desired shape of the future world monetary system” may be “prejudged” if the policy on gold were decided in the absence of a consensus of that system.
It was believed that France and other countries were striving for a higher gold price in order to increase the “relative importance of gold in the monetary system.”
Higher gold prices would allow countries to revalue their gold holdings, as France had already done at the time. This would result in massive “liquidity creation” and frustrate efforts to keep inflation under control.
Posted over at GATA.org, the latest edition of Things that make you go Hmmm… by Grant Williams explains how gold and silver market manipulation is no longer the realm of conspiracy theorists. The LIBOR manipulation scandal has proven that the financial elite are capable of exercising long-lasting, inconspicuous maneuvers to prolong the illusion of fiscal integrity. Even the main-stream media is picking up on this as seen in this CNBC interview with Cheviot Asset Management Investment Director Ned Naylor-Leyland:
CNBC Asia interviewed GATA’s Chris Powell regarding central bank intervention in the gold markets and their motives behind their actions. They’re able to suppress the price using paper instruments that are supposed to have physical gold backing, but do not. He estimates that 70-80% of all the gold people think they own doesn’t really exist! See the CNBC interview here.
June 13, 2012
In his letter to subscribers today, Ted Butler has finally come to the conclusion that the U.S. government is not only aware of JP Morgan’s manipulative short positions in the silver commodity futures market, but also intent on allowing them to continue to suppress the price of silver using those paper derivative positions. Read more about it here.
April 30, 2012
Today, when the gold and silver prices were slammed at the New York NYMEX open, the gold price was instantly down about $15/ounce (1%). For those precious metals investors who see this occur so frequently, they’re used to seeing the prices manipulated in such a manner. But the main-stream media outlets still refuse to report the issue objectively. The Wall Street Journal reports the incident as the result of a “fat finger” trading entry – a simple human error of sorts.
On the other hand, Russia Today’s Lauren Lyster interviews Bill Murphy of GATA on gold price manipulation and specifically mention JP Morgan as the institution behind the futures market rigging.
April 21, 2012
In this interview, Jim Rickards, author of Currency Wars, gives some insight on the intentions behind central banks’ desire to see gold’s price rise, but in an “orderly way.” That is, the central banks manage the price so it doesn’t explode to the upside violently. Overall, however, a slow and steady rise in the gold price achieves their objective of debasing the paper currency, thus enabling debt to be paid off easier and also allowing exports to increase GDP.
In the April issue of The Casey Report (subscriber protected), Casey wrote an article comparing the current gold bull market with that of the 1970’s. He also took up the issue of precious metals market manipulation. While he doesn’t dismiss the idea outright, he does ask some important questions, which he believes need answering.
In response, here is an article from James Turk entitled, Some Answers to Doug Casey’s Questions, which discusses in some detail, the motives and methods behind the precious metals manipulation scheme.
And, weighing in with their grand arsenal of proof, GATA responds too.
April 7, 2012
Here’s Mike Maloney interviewed on Russia Today where the gold and silver price suppression schemes are discussed. Gold leasing by central banks and Futures paper contract selling are among the concepts reviewed.
April 6, 2012
CNBC has interviewed Blythe Masters, Head of Global Commodities at JP Morgan, and discusses the speculation of precious metals manipulation.
Masters indicated that JP Morgan doesn’t hold the positions for itself, rather they are client positions. In this GATA dispatch, Chris Powell takes up the charge that this is indeed the truth and that the client JP Morgan is working for is actually the Federal Reserve.
The beneficiary of such manipulation is any entity which owns assets based on fiat currencies. It should be understood that a rising price of gold in terms of US dollars is indicative of a weakening dollar. So, that’s one of the primary motives for these institutions to suppress precious metal prices – to keep up the appearance of a strong dollar, which maintains their dollar-based wealth.
In addition to the video and audio links below, there have been some excellent articles written and for those that prefer to read about the manipulation, here are a couple suggestions:
Those serious precious metals investors will know that this isn’t a game – at least not in the long term. As long as politicians and central banks keep printing money in their attempts to “solve” their economic problems, fiat currencies will continue to lose value and force prices for precious metals and other commodities upward.
However, the recent turn of events in Europe shows that the short term, erratic price movements can turn the most fearless investors into trembling game players, trading their long-term winners for short-term losers. It’s worth a deeper look into this phenomenon, because the psychology in play here is one that will be predominant when the final crash eventually brings everything down.
If the crash comes via the sudden political transformation that abruptly halts the printing presses, thus forcing austerity by lack of currency supply, then everything, including precious metals, will crash (at least temporarily). In this case, cash will be temporarily enthroned – it will be hard to come by. Prices will come down on everything and those that have cash will be able to sweep up some sweet deals.
This is what most investors were afraid of during the European crisis of September and October, 2011. They were “keeping their powder dry” in case this scenario played out.
But eventually, the economy would need a strong, dependable currency again in order to sustain any growth. If the government simply started printing again, they’d only get more of the same problems. There would therefore need to be some kind of guarantee that would prevent the money supply from inflating at will – perhaps by backing the currency with precious metals. In either case, holding precious metals for the long term is the best strategy.
But how much should an investor allocate his/her investment portfolio to precious metals? The chart to the right suggests that a 33% allocation each, in cash, stocks and physical metal, will best serve to enable good deals to be snatched up when the market drops and still rake in gains during the the long-term bull market. Keep in mind that owning a precious metals ETF is not the same as owning physical metal – an ETF would be part of the stocks allocation.
Using this type of approach, the investor must continually adjust the allocations as needed when the market fluctuates. Note that this allocation chart is for investable funds only and should not include cash that is needed for living expenses or any non-discretionary items.
The Changing World of Investing
Dangerous Derivatives September 5, 2011
The investing world is undergoing quite a dramatic change. Professional traders and investors have been doing their thing over the past 40 or so years using mostly vehicles in the bond market (securities), stock market (equities) and realestate arenas. The so-called hard assets traded in the commodity markets have mostly been used by legitimate industries in order to hedge their losses in case of temporary, unforeseen economic hiccups.
But now, especially over the past decade, the derivatives market has become an estimated $600 trillion dollar market! No one really knows just how big this market is because there are so many different types of derivatives – and even derivatives of derivatives. And, if you recall, the MBS (Mortgage-Backed Securities) that were packaged up into different investment portfolios and marketed and sold to unsuspecting investors is the particular brand of derivative at the root of the 2008 financial crisis.
But derivatives are not limited to MBS. Financial wizards on Wall Street have mathematically tied pooled investments to Realestate, Bonds, Equities, Futures and Options in order to bring their clients specific opportunites, tailored to their needs. These investment vehicles have gotton so complex and yet so unregulated, it is just a matter of time before this bomb explodes. The 2008 crisis will look like a small ripple on a quiet pond when this next one hits.
In the late 1990’s, Brooksley Born, then chairman of the CFTC, warned about the potential threat to the economic system the unregulated derivatives market posed. But the insiders controlling the banking system, not to mention the political leaders in Washington, wouldn’t listen – nay, they even acted to supress her warnings. The derivatives market was making them too much money and they were not about to give that up.
Fast forward to today and we’ve recently witnessed our illustrious politicians as they’ve recognized the dangers that are still out there. They passed the Dodd-Frank bill into law. This is a bold and comprehensive set of measures, one of which seeks to regulate this dangerous derivatives market.
But the big banking institutions have been lobbying heavily to slow the implementation of Dodd-Frank. In fact, in the first 6 months of 2011, the financial industry has spent over $100 million campaigning to delay or water-down these regulations. Why? Two reasons: One is because it’s a racketeering industry making a lot of money for a select few; And two, because it’s so complex that it cannot even begin to be explained in any rational manner, thus impossible to regulate.
It’s a house of cards waiting to implode. And when it does, look out. If you’re not holding hard assets like gold and silver in your hands, you’ll be in big trouble because all those derivatives contracts are denominated in a fiat currency – for the U.S., it’s dollars.
Both sides of the trade (buyers and sellers) settle the trade in cash. When (not if) the major defaults come, the sellers won’t be able to cover. That will kick in yet more derivatives action – that of the CDS (Credit Default Swap) derivatives market. And when that happens, the major players won’t be able to cover those either.
Massive defaults will lead to yet another bail-out of major financial institutions. The inflation of the money supply necessary for these bail-outs will exceed anything we’ve seen before. This is a crash of truly epic proportions!
You will want to have something of value in your hands in order to trade anything because the fiat currencies will not be worth the paper on which they’re printed. Gold and Silver will be the preferred currencies.
So be sure you have your ounce(s) of gold or silver!!!
Contact the author of this article by sending an email to: Jon K
There are many ways to take advantage of the current bull market in the precious metals – gold & silver. It can get a little confusing, especially to the investor just beginning to look into the matter.
The easiest, though not necessarily the safest, way to take part in the precious metals market is to utilize the stock market and invest in an ETF (Exchange Traded Fund). An ETF is essentially a derivative because it derives its stock value based on the price of the underlying precious metal. For example, the biggest gold ETF is the SPDR GLD Trust (Ticker=GLD). The GLD ETF claims to hold a certain allocated amount of gold in a vault somewhere in London. It is this physical gold that would give value to each share of the GLD stock.
However, it would be preferable if the ETF in question would allow the stockholder to receive his/her gold upon request. According the the GLD prospectus if a certain stockholder has a Basket of 100,000 shares, they may act through an Authorized Participant to redeem their shares for physical gold. But most people aren’t wealthy enough to own that many GLD shares.
So what would happen if some unforeseen economic crisis caused such a stir that all those stockholders who are wealthy enough to have that many shares decided to redeem their Baskets? There is a very good chance that the value of the stock itself would crash because there isn’t enough gold supporting the outstanding shares – some shareholders would be left with shares that don’t have any supporting underlying metal. To see the reasons why this could happen, one only needs to investigate two things:
First, look at the NAV (Net Asset Value) of a basket of GLD shares in terms of ounces of gold. From the perspectus:
“The number of ounces of gold required to create a Basket or to be delivered upon the redemption of a Basket gradually decreases over time, due to the accrual of the Trust’s expenses and the sale of the Trust’s gold to pay the Trust’s expenses.”
This means that as time goes by, even those wealthy enough to own 100,000 shares of GLD, will get less and less physical gold when they redeem them.
Second, there is a huge amount of short interest in the GLD stock as can be seen here. At the time of this writing, the short interest is about 6%. And that represented 24,570,100 shares which had absolutely no metal backing up those shares. If this were a temporary occurance, one may forgive the situation as it would be necessary during the periodic volativity of trading activity to temporarily issue shares while the Trust’s sponsor accumulated the metal in the open physical market. But since this short situation is rather constantly above this percentage, it is not a temporary thing – indeed it is an aberration! There shouldn’t be naked short shares exceeding the neighborhood of 1% of the outstanding share base (and that’s even extreme for this kind of investment vehicle which attempts to map a certain amount of physical metal to each share).
The same situation results in an investigation of the largest silver ETF, iShares Silver Trust (Ticker=SLV).
There are, however, other ETFs which do offer better odds for the investor and have much more responsible trustees. Two that come to mind are the Sprott Physical Gold Trust (PHYS) and the Sprott Physical Silver Trust (PSLV). There are similar management overhead situations in both of these ETFs, but their short interest seem to be much more under control. (At the time of this writing the short interest was 0.05% and 1.4% respectively.)
More importantly, any shareholder who has enough PHYS shares to exchange for the equivalent cost of a 400 ounce good delivery bar can do so on a monthly basis:
“Unitholders that own the equivalent dollar value of approximately one LGD gold bar (~400oz), or more, have the ability to redeem their units for physical gold bullion.”
So, that’s about 40,000 shares necessary for redemption in physical metal in PHYS versus 100,000 share Baskets via Authorized Participants in GLD.
It get’s better. There seems to be tax advantages PHYS & PSLV have over other ETFs:
“For U.S. non-corporate investors who hold units for one year or more and timely file a QEF form, PHYS units are currently taxed at a capital gains rate of 15%, versus 28% applied against most gold ETF’s and physical gold coins*.”
But even these ETFs have potentially negative side-affects. It should be pointed out that not all analysts agree and here’s one article that disses PHYS.
If you just want to play the bull market by trading paper money and don’t expect to need the physical metal in the near future, then perhaps the ETF is a vehicle you can use to book profits. Just make sure you understand that the profits (or losses) will be in paper-based fiat currencies like the U.S. dollar. And as you should already know, all fiat currencies of the world are now racing to their nominal values (=zero). This article explains why that’s happening.
It’s just better and safer to own and hold your own physical metal in your hands. Especially if a catastrophe hits the global monetary system, as could happen given the situation with the dervatives market.
Contact the author of this article by sending an email to: Jon K
Many people are suspicious and doubt that the SPDR GLD ETF actually has all the physical gold it says it has. Here’s a CNBC video, where Bob Pisani was one of the few people in the world who was able to visit HSBC’s vault somewhere in London and was able to see all those beautiful stacks of gold bars.
This may have eased some suspicions, but some are still concerned. Some people suspect that the GLD ETF may not have sole ownership ties to these bars of gold due to central bank gold leasing programs in addition to the fact that there isn’t enough physical gold in the world to back the volume of daily paper trades in the gold futures and options markets.
Update September 9, 2011
Wow, talk about trashing a concept – here’s a video that lays out all the weaknesses in the GLD prospectus. As you watch the video and learn about the prospectus, keep in mind the three main players behind the SPDR GLD Shares:
The precious metals investor has to ask, “Why?” All the fundamentals that made gold and silver rise to the highs they saw in August are still in place. How can it all be erased in 3 days?
First of all, looking at a multi-year chart of gold performance, one can immediately see that the price rise was ascending at a much accelerated pace since July. Here’s the GLD chart which exemplifies this pattern.
There were good reasons for gold to take off like it did – as political and economic problems persisted in Europe, the middle east and the U.S., things were looking bad. And nothing’s changed. In fact, much has gotten worse! For example, the Swiss have effectively pegged their currency to the Euro, which means there isn’t any true safe haven currency to flee to anymore. In the face of all that, why the sudden plunge in precious metals?
The “leap” in the slope shown in the graph above is more speculation of future prices, rather than an indication of current prices. And the markets love to take advantage of speculators on both the long and short sides when they can make money from it. And that’s exactly what’s happened here.
There isn’t a bubble in precious metals. Gold and Silver will continue to rise until the governments of the world stop their incessant spending programs and central banks stop accommodating them by printing paper money at will.
There are two levels of investing going on here:
Speculators on the long term trend of gold and silver due to the fundamentals;
Traders taking advantage of short-term, irregular trends in the market.
Keep your cool & stay the course. Watch the trends for good times to buy back into the market (like RIGHT NOW!!!!)
Investing in the mining sector in an attempt to profit from the bull market in precious metals can be successful for those investors who understand the industry. Others may come up on the lucky side simply due to the overwhelming price advances of gold and silver.
In past precious metal markets, the mining company stocks have tended to move in the same direction of the underlying metals, but their volativity have far surpassed that of the metals – sometimes causing exponential price fluctuations compared to the price changes in metals.
This is largely due to the fact that investments in miners are essentially investments in the stock market. Hence, they are vulnerable to anything affecting the general economy and can move in the opposite direction of the metals, depending on circumstances.
The mining stocks are particularly vulnerable to political climates and even environmentally-motivated uprisings in countries where the companies are mining. For example, Hugo Chavez announced that he is nationalizing Venezuela’s gold miners. And in Peru, after the latest round of elections, the newly elected president, Ollanta Humala, would definitely like to have a share of the miner industries’ profits in his country, but it isn’t clear if or how that may happen. Nevertheless, just the rumors of government intervention of any kind can send a stock down dramatically.
Between the threats of government intervention or increasing mining taxes and environmental concerns, one walks a tight rope in determining companies in which to invest.
On top of these factors, the investor must decide which market-cap range is the best area of investment.
Large Cap (Market Capitalization in Billions of dollars & well established)
Mid Cap (Market Capitalization in high Millions of dollars)
Small Cap (Market Capitalization in low Millions or unestablished)
Large caps can be more stable, but not have much growth potential. In fact, most large caps depend on buying up small and mid caps in order to sustain growth. Some small caps can yield huge returns. But some are risky because they can run out of cash and go belly-up before any significant find is established. The trick is knowing which ones have the greatest potential.
So it is worth repeating…if the investor doesn’t know the industry, then perhaps a better label for the activity of investment would be gambling.
But there are knowledgeable people in the industry. And one way to take advantage of that knowledge is to invest in minor-related ETFs and Mutual Funds. These types of funds hold baskets of various stocks, chosen by the funds’ management.
Below is a table of some precious metal equities, but it should be noted that these are not recommendations – each investor should initiate his/her own investigations prior to making any investments. The table is provided for informational purposes only.
Disclaimer: The author either owns, has owned, or is contemplating owning the listings in this table.
Using ETFs to Participate in the Precious Metals Bull Run
The number of available Exchange Traded Funds (ETFs) has dramatically increased over the past decade. They allow the common investor to participate in classes of investments that used to be accessible to a select few, specialized investors & institutions.
But the relative ease and convenience of an ETF doesn’t necessarily mean they are safe investments. In fact, quite the opposite – they can be quite volatile. And since they are a derivative of the underlying asset or financial instruments, every investor should understand that the ETF does not yeild any ownership of anything but a share of stock. (It is not as if the underlying asset or financial instruments are being purchased.) At best, any ETF can only propose to have similar price-performance compared to the underlying instrument.
While it is true that some ETFs provide for the exchange of stock shares for the underlying assets, this option is closed to most investors simply due to the minimum number of shares necessary to execute such an option.
Any investor wishing to participate in the precious metals bull market by utilizing the ETF arena should understand that it is not the same thing as owning precious metals. Instead, it’s a paper asset and should be treated as such. It should also be realized that all ETFs are not managed the same, nor are they even structured the same. On top of that, given any specific ETF, there will always be varying opinions among different analysts regarding the validity and expected performance of that same ETF. As an example, here’s an article discussing and comparing some of the prospects of the GLD, SLV, PHYS and PSLV ETFs.
When it comes to ETFs based on precious metals, there are a variety of different types:
Standard ‘bull’ ETFs linking the price of one share to the price of a specific amount of a precious metal. The price of the shares tend to move more or less in synch with the underlying metal’s price movements.
Standard ‘bear’ ETFs also linking the price of one share to the price of a specific amount of a precious metal. Only the share price tends to move in the opposite direction of the metal. (The share price goes up if the price of the underlying metal goes down.)
Leveraged ETFs seek to give double (or sometimes triple) exposure to share price movements of twice (or more) the amount of the underlying metal. Again, these can be either bull or bear type exposure. (Incidentally, these leveraged ETFs are becoming quite a concern to market regulators in Washington. A derivative of a derivative of the underlying asset doesn’t seem so friendly to free markets. This related article discusses the dangers of the derivatives market.)
Below are some of the more popular ETFs in the precious metals space. Please note that this list is not comprehensive and these are not recommendations, but provided for informational purposes only.
Buying physical precious metals requires the investor to take delivery of their gold and/or silver bullion in coin or bar form. This also requires self-storage (using either a home-safe or a bank safety-deposit box). Every serious precious metals investor should have at least some percentage of their entire investment portfolio in this form of physical ownership.
The world wide web makes it possible to do online investing as well as purchase and remotely store precious metals. For those investors that are unable to personally store their metal, this option can be extremely convenient. With the added benefits of having global access to storage facilities in the U.S., Europe and Asia, this option can also build in geographical diversification – always a good thing in today’s political climates.
There are Exchange Traded Funds (ETF) which trade just like stocks in the stock market. These are by far the most convenient, but also perhaps a bit more volatile than the actual physical market itself. This method of investing should not truly be considered an investment in the physical metal, since delivery of the metal would be difficult for most investors.
If you’re ultra-wealthy and you want to preserve that wealth, it can be extremely difficult to acquire all the physical metal your money can buy. This is mostly because hitting the market with huge buy orders can make the price spike up and upset the market. For this reason, the elite classes usually buy up their own mining companies. The smaller investor can still participate via publicly offered shares in large, mid and small-cap mining companies listed on stock-exchanges.