Zeev's Turnips Patch-No Politics (ZEEV)

[basserdan]

*** James Turk on the Gold ETF ***

Hi PH, I thought you'd be interested in the following excerpt from last evening's LeMetropole Cafe......


More on GLD from James Turk in his Freemarket Gold & Money Report over the weekend. Seems to me James has had this one nailed for some time. Proof/evidence of the correctness of his initial assertions continue to mount:

THE GOLD ETF
I have been very critical of GLD, the new exchange-traded fund for gold. My point has been that it is not an alternative to owning physical metal. Rather, it is just another paper alternative promising to deliver gold.

Consequently, I have been wondering how GLD would prepare its financial statements, given that the prospectus discloses that gold stored in its subcustodians and sub-subcustodians (which could be all of GLD's gold) is not audited, or even inspected. Its recently filed 10-Q answers this question.

The asset reported on GLD's balance sheet says: "Investment in Gold". It does not say just: "Gold". By declaring GLD's asset to be an "investment", it is an easier hurdle to meet for auditing purposes.

Investments in gold can be nearly anything gold related, and for example, include gold certificates and other promises to pay gold. All GLD has to do to satisfy the auditors therefore is to show them a bank statement of the Bank of England for example, or any other subcustodian (i.e., a piece of paper) that says gold is stored with them.

If GLD declared its asset to be "Gold", they would have to substantiate to their auditors that the gold really exists, which GLD of course cannot do because of the inability to audit or even inspect gold stored in subcustodians and sub-subcustodians.

Thus, this 10-Q just re-confirms what I and others have concluded all along GLD is just another paper scheme. It should not be considered as an alternative to physical gold ownership because it is not. But we only need logic, and not the 10-Q, to tell us that.

Since launching in November 2004, GLD has gathered some $2 billion of assets. Its sponsors would have us believe that this $2 billion is newly created gold demand, but this proposition is self-evidently preposterous given that the gold price has fallen $30 since GLD was launched.

How much of that $2 billion would have been used to purchase physical metal if GLD hadn't existed? How much higher would gold be today if GLD wasn't launched? So do not view GLD as an alternative to physical gold, because it's not.

http://www.lemetropolecafe.com/james_joyce_table.cfm?cfid=1613012&cftoken=99453553&pid=4441