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The "paper gold" far exceeds the actual bullion that has been mined. Some feel if things were to go bad the holder of the paper might default. If there was a run on GLD next week, at some point someone would have to come in and either bail them or they would fold with lots of shareholders holding worthless paper.
The "paper gold" far exceeds the actual bullion that has been mined. Some feel if things were to go bad the holder of the paper might default. If there was a run on GLD next week, at some point someone would have to come in and either bail them or they would fold with lots of shareholders holding worthless paper.
The paper gold to real gold ratio is insane. Paper way exceeds existing physical and, like you say, there is counterparty risk.
@scott, Exactly. It is a contract of trust so to speak. The Federal Reserve is the same way except they can print more money which could have consequences. The gold bugs cannot mine enough gold to satisfy requirements in a short period of time.
Taking this a bit further out on the limb of phyiscal possession of metals and minerals. It seems we undervalue the importance of mining companies and the resources they own.
It seems to me that mining companies (that own establish reserves of metals and minerals) hold these resources in a very safe vaulted state (the earth).
When a mining company wishes to meet a market demand for it metal or mineral it "unearths" its vaults, refines, processes and brings the resource to market for a price.
From the standpoint of taking physical ownership of the resource, I believe shareholders of mining companies own a physical piece of these untapped resources as they safely remained stored until they are unearthed from their vaulted state awaiting market demand.
The "paper gold" far exceeds the actual bullion that has been mined. Some feel if things were to go bad the holder of the paper might default. If there was a run on GLD next week, at some point someone would have to come in and either bail them or they would fold with lots of shareholders holding worthless paper.
Trying to understand this better. [Note: AP stands for authorized participant of the ETF.] "If the AP needs to create new GLD shares, he buys an equivalent quantity of gold bullion, arranges to take delivery of that gold at the HSBC vault in London, and transfers ownership of the gold to the GLD Trust. The GLD custodian deposits the new gold into the trust’s allocated account, and the GLD trustee instructs Depository Trust Co. to create the appropriate number of new GLD shares and issue them to the AP."
"Weiskopf: How did you select one-tenth of an ounce of gold as the size of the initial GLD unit? Milling-Stanley: When GLD came to market on the New York Stock Exchange in November 2004, the price of 1 ounce of gold was $442.00. We considered a variety of prices for the ETF, but in the end decided to opt for a combination of simplicity (one-tenth of an ounce) and affordability ($44.20). Weiskopf: Who pays the expenses of the GLD Trust? Milling-Stanley: The trust accrues its expenses every day, to ensure that every investor pays his fair share. Once a month, the trustee sells a tiny quantity of the gold backing GLD in order to meet these expenses. That is why you will see minute changes in the quantity of gold backing GLD shares each month. GLD has been in existence now for almost 10 years. When the product was launched, every GLD share was backed by one-tenth of an ounce of gold. Expenses have accumulated at 40 basis points per year of average daily net asset value, so you would expect the current price of one GLD share to be about 4 percent lower than the price of one-tenth of an ounce of gold—and that is right where GLD currently trades."
I'm not seeing that the dollar value of the "paper gold" far exceeds the dollar value of the gold bullion, and that if too many people sold, there could be a default. Isn't there enough gold bullion to back the dollar value of the shares, if each share represents roughly one tenth an ounce of gold...and is priced roughly one tenth an ounce?
After reading that link and researching a bit I have to say I was wrong in my assessment of these ETFs and GLD in particular. I have not ever invested in any of these, only in a mutual fund that had both physical and miners stocks. Thanks for bringing this up.
IMO, there would still be an advantage in holding physical gold over the ETF in a Mad Max scenario but that goes into a bigger discussion about security and barter.
I started traking a gold fund yesterday ... SGGDX, First Eagle Gold A ... which was up 2.47% yesterday. I have linked its M* report for those that might wish a look. It's holdings currently consist mostly of the miners but about 20% of its holdings are in the metal itself.
I am still thinking of starting a position in a metals fund soon. And, this just might be the one.
I guess the thing in terms of CEFs is that, if one were to go buy physical, you're paying a premium from the dealer. CEF (which is gold and silver) is still trading around a 10% discount to NAV. If you believe that there will be a rebound in the metals, you could see gains plus the discount to NAV close. From 2009-2012, it traded at various premiums over NAV.
Thanks for your comment on CEF, Central Fund of Canada.
I have owned CEF in the past and use to trade closed-end funds from time-to-time. Just as the discounts can go to premiums the premiums can go to discounts. Those CEF's that are using leverage have had a tail wind at their backs for the past couple of years ... but, when interest rates begin to move upward ... one best be on guard and watch their positions closely. I have had some nasty surprises. One of my favorite CEFs is RVT. Through the years I made a lot of money in it ... but, got out of it back in the 2008 great recession and so far I have not ventured back to it. RVT had to discontinue their dividend for a while (9%) to stay afloat and only restored it back to about the 5% to 6% range a few years back.
In addition, made some good money, through the years, in CEF, Central Fund of Canada in family portfolio's.
When inflation comes knocking CEF will indeed be a good move, by my thinking, for now though I think I am going with SGGDX as rono pointed out currently the better value is perhaps in the miners over the metal(s) themselves.
LONDON, Nov 07, 2014 (BUSINESS WIRE) -- Intercontinental Exchange ICE, +1.15% the leading global network of exchanges and clearing houses, today announced that following an extensive selection process facilitated by the London Bullion Market Association (LBMA), ICE Benchmark Administration (IBA) has been announced as the new administrator of the LBMA Gold Price. ICE Benchmark Administration expects to assume responsibility of the LBMA Gold Price in early 2015.
The LBMA Gold Price will replace the Gold Fixing Price which has been in existence since September 1919. The price is set in London twice a day and provides a published benchmark price that is widely used as an international pricing medium by producers, consumers, investors and central banks.
As the new administrator for the LBMA Gold Price, IBA will transition to a physically settled, electronic and tradeable auction, with the ability to participate in three currencies: USD, EUR and GBP. Aggregated gold bids and offers will be published in real-time with the imbalance calculated and the price updated every 30 seconds. IBA will use the WebICE technology platform which will allow direct participants as well as sponsored clients to manage their own orders in the auction in real time via their own screens.
IBA will assume overall responsibilities for the London Gold Price as follows:
Governance of all LBMA Gold Price administrative processes including oversight, surveillance and decisions of methodology, systems and controls; An electronic physically settled auction with live interest shown and orders taking in three currencies; Well established tools (WebICE) for participants to manage their risk in the process – for Front Office, Compliance and Credit Risk; and A fair and sustainable fee structure, designed to encourage direct participation from a diverse cross-section of market participants and broad use of the price as a benchmark. Finbarr Hutcheson, President, ICE Benchmark Administration said: “We are delighted to have been selected by a combination of the LBMA and their members as the new administrator of the LBMA Gold Price. We look forward to working closely with the LBMA and the precious metals industry as we deliver an IOSCO-compliant benchmark that fulfils the requirements of market participants in an efficient and transparent manner.”
When you guys treat physical gold as though it has a value greater than paper are you implying that ultimately there are two totally independent pricing mechanisms hidden below the price? I guess I am thinking that if paper inflates the quantity of gold isn't the physical gold hopelessly convoluted in the same pricing bag? (Agamemnon speculations aside.)
When you guys treat physical gold as though it has a value greater than paper are you implying that ultimately there are two totally independent pricing mechanisms hidden below the price?
I suppose the idea is that there is "financialization" of everything. Everything has to be turned into a financial product. You have some investors even trying to turn sports stars into assets that can be invested in. There is more paper gold than there is physical and the amount is significant.
Those who own gold from the standpoint of an "insurance policy" against the worst case scenario do have - I think a legitimate - concern that if they have paper claims on gold, they may not be able to get it or you may have counterparty risk if it's not really there (has been lent out, etc.)
In terms of counterparty risk, I'll offer the example of MF Global.
It has often been stated that the COMEX does not have the gold to cover all of the claims if everyone who owns gold futures wanted to stand for delivery. If there was a "run on the COMEX", then those who own futures will probably not get the gold if they stand for delivery. The COMEX will likely pay them the value and they'll have the cash but not the gold.
Long story short, if you view gold as an "insurance policy" against a "worst case scenario", then there is the view that "if you don't hold it, you don't really own it." If you are looking for gold as a trade, you probably don't care as you're merely looking for something that reasonably tracks the value for some period of time.
I opened a starting position today in SGGDX, First Eagle Gold A, in the specialty sleeve of my portfolio. I plan to position cost average this into a full position over the coming months. During the past two day this fund is up about 8%.
Scott put it best above in response to Anna. The amount paper bullion far exceeds that of physical. Does this present a problem? Probably not. However, there are quite a few in the investing world that do see it as an issue. This is why folks buy CEF or Sprott's stuff - because they perceive them to be safer. And this only applies to those that are investing in pm's via the security market - say in retirement accounts or whatnot. Folks that don't trust ANY paper version and only believe in hands on bullion use safes, safe deposit boxes, disguise, etc.
Most sane people have their core bullion holding - insurance policy or security blanket or bed buddy as my grandkids call their teddy bears - diversified into various investment type vehicles and products. A little bit here and a little be there.
BTW, I'm scaling into a couple of wee positions with ASM and SVM - junior silver miners.
GDX, gold miners up 8.31% GDXJ, junior gold miners, up 11.33%
NUGT, up 24.07% (leveraged 3x gold miners)[BTW, when you "hover with your mouse", MFO incorrectly says it is 2x leveraged, not 3x] JNUG, up 27.65% (leveraged 3x junior gold miners)
Seems my first reply to your question ... Why SGGDX? ... was taken down for some unknown reason to me. Checked my folder to see if I'd received any communication about this and none could be found. Must have been a system glitch.
I'll recap my thoughts again.
For starters ... Here are three reasons.
1) I have been following gold and the miners for sometime now and felt they had become very oversold and was looking to make an investment in them. In addition, rono had made a comment and from my take on his comment it was my understanding he felt the nearterm better price action would be in the miners over the metal. Seems rono has been right more times than not, knows more about the metals than I do, and his thinking somewhat mirrored my own.
2) In reviewing the precious metals category SGGDX is one of the top rated funds with five stars by Morningstar and is also one of the category's top performing funds. I have linked its fact sheet below. Form studying its fact sheet about 70% of the fund is in the miners and about 20% in the metal itself and not the gold paper many funds hold. If I had wanted to make an investment in the metals (gold & silver) only I'd have used Central Fund of Canada (CEF) as it holds both these metals and I have used this fund before within family member portfolios.
3) Over the past two days (Thursday & Friday) it appears this fund is up by about 8% and I wish I'd got my money down earlier. Friday, I opened a starter position in the specialty sleeve of my portfolio; and, I plan to position cost average it to a full position over time.
Hope this helps ... and, I really like to know why my first answer disappeared? Vanished along with your acknowledgement of my answer. (For now I am chalking it up to a system glitch.)
Comments
It seems to me that mining companies (that own establish reserves of metals and minerals) hold these resources in a very safe vaulted state (the earth).
When a mining company wishes to meet a market demand for it metal or mineral it "unearths" its vaults, refines, processes and brings the resource to market for a price.
From the standpoint of taking physical ownership of the resource, I believe shareholders of mining companies own a physical piece of these untapped resources as they safely remained stored until they are unearthed from their vaulted state awaiting market demand.
I'm reading an article on GLD, http://www.etf.com/sections/features/21952-structure-matters-how-gold-fund-gld-works.html?showall=&fullart=1&start=3
Trying to understand this better. [Note: AP stands for authorized participant of the ETF.]
"If the AP needs to create new GLD shares, he buys an equivalent quantity of gold bullion, arranges to take delivery of that gold at the HSBC vault in London, and transfers ownership of the gold to the GLD Trust. The GLD custodian deposits the new gold into the trust’s allocated account, and the GLD trustee instructs Depository Trust Co. to create the appropriate number of new GLD shares and issue them to the AP."
"Weiskopf: How did you select one-tenth of an ounce of gold as the size of the initial GLD unit?
Milling-Stanley: When GLD came to market on the New York Stock Exchange in November 2004, the price of 1 ounce of gold was $442.00. We considered a variety of prices for the ETF, but in the end decided to opt for a combination of simplicity (one-tenth of an ounce) and affordability ($44.20).
Weiskopf: Who pays the expenses of the GLD Trust?
Milling-Stanley: The trust accrues its expenses every day, to ensure that every investor pays his fair share. Once a month, the trustee sells a tiny quantity of the gold backing GLD in order to meet these expenses. That is why you will see minute changes in the quantity of gold backing GLD shares each month.
GLD has been in existence now for almost 10 years. When the product was launched, every GLD share was backed by one-tenth of an ounce of gold. Expenses have accumulated at 40 basis points per year of average daily net asset value, so you would expect the current price of one GLD share to be about 4 percent lower than the price of one-tenth of an ounce of gold—and that is right where GLD currently trades."
I'm not seeing that the dollar value of the "paper gold" far exceeds the dollar value of the gold bullion, and that if too many people sold, there could be a default. Isn't there enough gold bullion to back the dollar value of the shares, if each share represents roughly one tenth an ounce of gold...and is priced roughly one tenth an ounce?
thanks
After reading that link and researching a bit I have to say I was wrong in my assessment of these ETFs and GLD in particular. I have not ever invested in any of these, only in a mutual fund that had both physical and miners stocks. Thanks for bringing this up.
IMO, there would still be an advantage in holding physical gold over the ETF in a Mad Max scenario but that goes into a bigger discussion about security and barter.
I started traking a gold fund yesterday ... SGGDX, First Eagle Gold A ... which was up 2.47% yesterday. I have linked its M* report for those that might wish a look. It's holdings currently consist mostly of the miners but about 20% of its holdings are in the metal itself.
I am still thinking of starting a position in a metals fund soon. And, this just might be the one.
http://quotes.morningstar.com/fund/sggdx/f?t=sggdx
Old_Skeet
Thanks for your comment on CEF, Central Fund of Canada.
I have owned CEF in the past and use to trade closed-end funds from time-to-time. Just as the discounts can go to premiums the premiums can go to discounts. Those CEF's that are using leverage have had a tail wind at their backs for the past couple of years ... but, when interest rates begin to move upward ... one best be on guard and watch their positions closely. I have had some nasty surprises. One of my favorite CEFs is RVT. Through the years I made a lot of money in it ... but, got out of it back in the 2008 great recession and so far I have not ventured back to it. RVT had to discontinue their dividend for a while (9%) to stay afloat and only restored it back to about the 5% to 6% range a few years back.
In addition, made some good money, through the years, in CEF, Central Fund of Canada in family portfolio's.
When inflation comes knocking CEF will indeed be a good move, by my thinking, for now though I think I am going with SGGDX as rono pointed out currently the better value is perhaps in the miners over the metal(s) themselves.
Old_Skeet
The LBMA Gold Price will replace the Gold Fixing Price which has been in existence since September 1919. The price is set in London twice a day and provides a published benchmark price that is widely used as an international pricing medium by producers, consumers, investors and central banks.
As the new administrator for the LBMA Gold Price, IBA will transition to a physically settled, electronic and tradeable auction, with the ability to participate in three currencies: USD, EUR and GBP. Aggregated gold bids and offers will be published in real-time with the imbalance calculated and the price updated every 30 seconds. IBA will use the WebICE technology platform which will allow direct participants as well as sponsored clients to manage their own orders in the auction in real time via their own screens.
IBA will assume overall responsibilities for the London Gold Price as follows:
Governance of all LBMA Gold Price administrative processes including oversight, surveillance and decisions of methodology, systems and controls;
An electronic physically settled auction with live interest shown and orders taking in three currencies;
Well established tools (WebICE) for participants to manage their risk in the process – for Front Office, Compliance and Credit Risk; and
A fair and sustainable fee structure, designed to encourage direct participation from a diverse cross-section of market participants and broad use of the price as a benchmark.
Finbarr Hutcheson, President, ICE Benchmark Administration said: “We are delighted to have been selected by a combination of the LBMA and their members as the new administrator of the LBMA Gold Price. We look forward to working closely with the LBMA and the precious metals industry as we deliver an IOSCO-compliant benchmark that fulfils the requirements of market participants in an efficient and transparent manner.”
http://www.marketwatch.com/story/ice-benchmark-administration-to-become-new-administrator-of-the-lbma-gold-price-2014-11-07
----
Long ICE. The exchanges are another way to play commodities. I continue to like ICE out of the bunch.
Those who own gold from the standpoint of an "insurance policy" against the worst case scenario do have - I think a legitimate - concern that if they have paper claims on gold, they may not be able to get it or you may have counterparty risk if it's not really there (has been lent out, etc.)
In terms of counterparty risk, I'll offer the example of MF Global.
It has often been stated that the COMEX does not have the gold to cover all of the claims if everyone who owns gold futures wanted to stand for delivery. If there was a "run on the COMEX", then those who own futures will probably not get the gold if they stand for delivery. The COMEX will likely pay them the value and they'll have the cash but not the gold.
Long story short, if you view gold as an "insurance policy" against a "worst case scenario", then there is the view that "if you don't hold it, you don't really own it." If you are looking for gold as a trade, you probably don't care as you're merely looking for something that reasonably tracks the value for some period of time.
Scott put it best above in response to Anna. The amount paper bullion far exceeds that of physical. Does this present a problem? Probably not. However, there are quite a few in the investing world that do see it as an issue. This is why folks buy CEF or Sprott's stuff - because they perceive them to be safer. And this only applies to those that are investing in pm's via the security market - say in retirement accounts or whatnot. Folks that don't trust ANY paper version and only believe in hands on bullion use safes, safe deposit boxes, disguise, etc.
Most sane people have their core bullion holding - insurance policy or security blanket or bed buddy as my grandkids call their teddy bears - diversified into various investment type vehicles and products. A little bit here and a little be there.
BTW, I'm scaling into a couple of wee positions with ASM and SVM - junior silver miners.
peace,
rono
expect-bounce-precious-metals/
Bounce has been in play today...checking to see if the cat is alive and clawing.
GLD up 2.81%
GDX, gold miners up 8.31%
GDXJ, junior gold miners, up 11.33%
NUGT, up 24.07% (leveraged 3x gold miners)[BTW, when you "hover with your mouse", MFO incorrectly says it is 2x leveraged, not 3x]
JNUG, up 27.65% (leveraged 3x junior gold miners)
http://tocqueville.com/insights/john-hathaway-and-doug-groh-buy-gold-its-1999
Seems my first reply to your question ... Why SGGDX? ... was taken down for some unknown reason to me. Checked my folder to see if I'd received any communication about this and none could be found. Must have been a system glitch.
I'll recap my thoughts again.
For starters ... Here are three reasons.
1) I have been following gold and the miners for sometime now and felt they had become very oversold and was looking to make an investment in them. In addition, rono had made a comment and from my take on his comment it was my understanding he felt the nearterm better price action would be in the miners over the metal. Seems rono has been right more times than not, knows more about the metals than I do, and his thinking somewhat mirrored my own.
2) In reviewing the precious metals category SGGDX is one of the top rated funds with five stars by Morningstar and is also one of the category's top performing funds. I have linked its fact sheet below. Form studying its fact sheet about 70% of the fund is in the miners and about 20% in the metal itself and not the gold paper many funds hold. If I had wanted to make an investment in the metals (gold & silver) only I'd have used Central Fund of Canada (CEF) as it holds both these metals and I have used this fund before within family member portfolios.
https://www.feim.com/sites/default/files/media/ckeditor/1/lit_forms/FE_Gold-FactSheet.pdf
3) Over the past two days (Thursday & Friday) it appears this fund is up by about 8% and I wish I'd got my money down earlier. Friday, I opened a starter position in the specialty sleeve of my portfolio; and, I plan to position cost average it to a full position over time.
Hope this helps ... and, I really like to know why my first answer disappeared? Vanished along with your acknowledgement of my answer. (For now I am chalking it up to a system glitch.)
Old_Skeet