Monday, June 23, 2014

Warning About Gold ETFs

Sachin P Mampatta writes from Mumbai :
Gold exchange traded funds (ETFs) have a new element of risk. These schemes which earlier held physical gold equivalent to the unit holders’ investments, now lend a portion of these, as part of a government move to meet gold demand through domestic sources.

This means they no longer directly hold all the gold their investors have paid for. This introduces an element of credit risk to these funds, say experts.

Goldman Sachs Asset Management runs India’s largest gold ETF. It issued a note to investors last month that the risk profile of the product had changed. “A situation could arise where the issuer is unable to return the principal physical gold to GS Gold BeES (their scheme) upon maturity or in case of an early redemption. Such inability to return physical gold could arise on account of liquidity problems or general financial health of the issuer,” said the note...
Dhirendra Kumar, chief executive officer of fund tracker, Value Research, said the nature of the gold ETF had changed. “So far, the situation was that the underlying (product) was gold, and now the gold is lent to someone else. The lending norms are stringent but, still, the moment you lend, how the gold will circulate and the process of replenishing the stock as required adds some complexity to the fund,” he said.

Niranjan Risbood, director, fund research, Morningstar India, said the risk was minimal in a benign market but could be magnified in extreme situations. “I don’t think it will have a significant impact in terms of risk, especially since the institutions they are lending to include entities such as the largest bank in India. It is only in extreme cases of liquidity crises, where investors are rushing to redeem in large numbers, that there would be a risk,” he said.
If you are holding gold as protection against a crisis, the best thing to do is to buy gold coins and take delivery. If you are a short-term trader, it is a somewhat different story, but you should know that the risk is increasing. If you are a long-term investor, who wants to participate in an up move in gold via the stock market, you are much better off buying gold mining stocks. Everyone, though, should hold some physical gold (and silver) privately.



  1. Time To Get Out Of Your Bond Fund Investments

    The elite aristocracy has at least on rule of morality: they consider it to be in poor taste to not warn in advance of doing something horrible to the middle class . Here, middle class is defined as anyone not rich enough to own his/her own politician – that probably means you.

    The latest warning involves what is likely an the eventual onset of a huge derivatives blow-up in a one or several large bond mutual funds. There are reasons I believe that this event may be closer than any of us realize.

    Pimco, Fidelity and Blackrock manage by far the largest amount of money in bond funds. In fact, I would bet good money that when the accident occurs, the White House will deem each of those as “Too Big To Fail” and find cause to bail them out using your money.

    I know for a fact that Pimco’s Total Rate of Return fund is loaded with hidden derivatives risk. Did you know that? Does your financial advisor know that. I’d bet that 99.5% of the advisor world does not know this. I know because I know of a study that was done which spent a month pulling apart all of the data and information available on Pimco’s Total ROR bond fund. I was told that it is a derivatives train wreck waiting to happen.

    The money management world is “monkey see/monkey do.” So it’s a good bet that most, if not all, big bond funds are loaded with dangerous derivatives.

    So here’ s your warning: GET OUT OF YOUR BOND FUNDS NOW

  2. My company has an agreement with Sharebuilder 401k, which provides only ETF
    It's all a paper castle, but I buy IAU.


  3. Germany's Gold: Auf Wiedersehen

    "Germany has decided its gold is safe in American hands."

    That is one response, when you ask for the return of your gold, and your request is refused.

    Just when you thought the spin could not become any more blatant or ridiculous.

    Do you have any doubts? It is not patriotic to have doubts. You must do your duty, and believe.

    This saga of Germany's national gold reserves being held by the Fed in New York is one of the most incredible stories in some time. I believe it is related to what will become the scandal of the century.

    Those reserves are largely gone, or encumbered with multiple claims, having been given to the Banks for their profit.

    German Gold Stays in New York in Rebuff to Euro Doubters
    By Birgit Jennen
    Jun 23, 2014

    Germany has decided its gold is safe in American hands.

  4. I add that gold mining stocks will not at this point in time provide any more wealth appreciation, and should not be part of one's investment plan.

    On Monday June 23, 2014, The loose monetary policies of the world central banks have finally stirred up inflation and have finally resulted in turning investment sentiment from greed to fear, specifically fear that the world central banks’ monetary policies have crossed the rubicon of sound monetary policy, and have “money good” investments bad.

    Excluding the Precious Metal Mining Stocks, GDX, GDXJ, SIL, SILJ, all forms of fiat wealth, World Stocks, VT, Nation Investment, EFA, Global Financials, IXG, Commodities, DBC, and Aggregate Credit, AGG, traded lower, causing the world to enter into the final phase of the Business Cycle, that is Kondratieff Winter, providing the perfect short selling opportunity of selling from an equity market top, more specifically an Elliott Wave 5 High.

    Wealth cannot be preserved by investing in any fiat asset. Gold Miners, GDX, such as EGO, Junior Gold Miners, GDXJ, such as ANV, Silver Miners, SIL, such as SLW, and Junior Silver Miners, SILJ, such as SSRI, traded higher, manifesting a blow off market top, in the Precious Metal Mining Stocks; these are no longer a viable investment opportunity.

    Soon the US Dollar, $USD, UUP, will buckle and trade lower with the rest of the World Major Currencies, DBV, as well as the Emerging Market Currencies, CEW, which will invigorate the investment demand for Gold, GLD, whose price will rise from its current range of $1,240 to $1,320.

    Gold is in the middle of an Elliott Wave 3 Up, and as such only God knows how high it will go.

    1. Kondratieff cycles and Elliot waves? Do you do divination with tea leaves, chicken entrails, and I Ching for investment advice, too? Maybe a little Tarot card and Oiuja board action, too?