Paper gold market defaults loom ?

[leegs]

Re: Paper gold market defaults loom ?

Quote:

As this is IRA funds, I don't have the flexibility to be able sell and pull out of IRA to invest in real stuff! On the other hand, I am buying what I can from BV with non-IRA funds.[/quote]

I am facing similar quandary with respect to IRA funds. Apparently there are IRAs where it is possible to invest in gold, albeit still paper, but with somewhat less abstraction than e.g. GLD. One that I have heard of, but have not researched, is thentrustgroup.com.

Also question to any and all - accepting that paper is less good than physical, there is apparently a spectrum of badness to paper. Where does BullionVault lie on this spectrum?

[raja]

Re: Paper gold market defaults loom ?

it is so obvious that to think otherwise is to have blinders on.

GLD is paper.

Perth is paper.

CEF is paper.

Paper is fine but paper is not GOLD.

C'mon...quit fooling yourself. The reality is that paper is paper. There is a degree of convenience, and perhaps speculative advantage. But having paper is NOT THE SAME IN ANY WAY with owning buillion and having it buried someplace where only you know where it is.

grape and jt,

The problem is that you fail to acknowledge that the value of each form of gold investment depends on what the future holds.

In a high-, but not hyper-inflationary scenario, paper gold will be fine.
In hyperinflation or some sort of societal collapse, physical gold will be better.

Yet . . . you act as if only one scenario is possible, and that physical is the only form of gold that a reasonable person should have. This is not true . . . .

[Guest]

Re: Paper gold market defaults loom ?

Raja - I'd warn this is an assumption on your part, and given the way things are evidently going in the retail market, it is an audacious assumption. Recommendation is well intentioned and with your prospering at heart.

grape and jt, The problem is that you fail to acknowledge that the value of each form of gold investment depends on what the future holds. In a high-, but not hyper-inflationary scenario, paper gold will be fine.

[jtabeb]

Re: Paper gold market defaults loom ?

grape and jt,

The problem is that you fail to acknowledge that the value of each form of gold investment depends on what the future holds.

In a high-, but not hyper-inflationary scenario, paper gold will be fine.
In hyperinflation or some sort of societal collapse, physical gold will be better.

Yet . . . you act as if only one scenario is possible, and that physical is the only form of gold that a reasonable person should have. This is not true . . . .

No, I invest for certainty. Physical gold serves the purpose of hedging BOTH CASES, PAPER GOLD does not.

If you want to gamble, that is your choice, but it is not WISE investment advice for those who are seeking it in this forum. (unless you plan on making everyone whole if you are wrong). I don't have to worry about that if someone acts on my advice, which is why I can sleep at night.

[swgprop]

Re: Paper gold market defaults loom ?

Quote:

As this is IRA funds, I don't have the flexibility to be able sell and pull out of IRA to invest in real stuff! On the other hand, I am buying what I can from BV with non-IRA funds.

You might take a look at some info I recently posted on the subject of IRA's + gold:

http://www.itulip.com/forums/showthr...50480#poststop

[ASH]

Re: Paper gold market defaults loom ?

Can someone lay out a credible scenario has how GLD defaults might go down and leading edge warning signs to watch?

No, that's fair. I didn't attempt to answer that question earlier. I gave voice to some general suspicions about GLD, but since you've pressed the question, I put some serious time into researching the matter. I think some of my specifc misgivings from earlier may have been misplaced, but overall, there are still reasons to worry about GLD.

After many hours of research, this turned into a gargantuan post, which many will not have the stamina or interest to read. Therefore, here is the executive summary:

Obviously, in the case of systemic failure, GLD will be worthless. As I note below, their procedures and legal protections leave much to be desired, so shareholders are somewhat vulnerable to outright fraud or malfeasance. However, the question was really how GLD might default in the case of systemic stress short of complete failure. My take is that the most likely focal point for default is the custodian. The physical custodian of GLD's bullion is HSBC, a bank. Recently, many banks have been in financial trouble. If HSBC fails, its assets will be sold off to pay its depositors and creditors. Normally, the bulk of GLD's bullion holdings are segregated from HSBC's assets in allocated bullion accounts, but during transactions into or out of the Trust, the portion of GLD's bullion that is involved actually resides in unallocated accounts, co-mingled with HSBC's assets. If the failure coincides with a very large volume of GLD transactions (as might possibly happen during a financial panic), then a significant portion of GLD's bullion could be co-mingled with HSBC's assets. If HSBC fails in this state, then there will be no way for the Trust to claim its bullion, and it will at best be just another creditor in line for payment when HSBC's assets are liquidated. The warning sign to watch for, then, is the convergence of high trading volume in GLD with the rumored insolvency of HSBC.

===============================

Now the interminable post:

$#* got me started down this road, and here's what I've been able to discover. (Standard disclaimer: this does not constitute legal or financial advice, and I am in no way qualified to give either type of advice, because I design semiconductor devices for a living!)

First, a word about the structure of GLD. GLD is an investment trust, formed on November 12, 2004 under New York law pursuant to a trust indenture. A trust indenture is an agreement in a bond contract made between a bond issuer and a trustee that represents the bondholder's interests by highlighting the rules and responsibilities that each party must adhere to. I believe the significance of this legal form is that shares in GLD are a form of debenture, and the holders of such shares have the legal status of a creditor rather than an owner.

According to the GLD prospectus, the Sponsor is World Gold Trust Services, LLC, or WGTS, which is wholly-owned by the World Gold Council, or WGC, a not-for-profit association registered under Swiss law. The Sponsor is a Delaware limited liability company, and under that law, the World Gold Council is not responsible for the debts, obligations and liabilities of the Sponsor. I believe the Sponsor, in this case, is essentially playing the role of a bond-issuer (according to the form of a trust indenture), and holders of GLD shares are essentially playing the role of creditors to the Sponsor. Although the Sponsor was set up by the World Gold Council, the WGC is not on the hook for any liabilities of the Sponsor, which means as a creditor, your claims start and end with WGTS.

The Trustee is BNY Mellon Asset Servicing, a division of The Bank of New York Mellon (formerly the Bank of New York), or BNY Mellon. The Trustee is basically the asset manager in this case -- it orders the purchase and sale of gold as necessary, and keeps an eye on the Custodian.

The Custodian is HSBC Bank USA, N.A. The Custodian has physical possession of the gold bullion, and is also the market-maker, facilitating the transfer of gold into and out of the Trust's ownership. The gold is stored in London, and the transactions are made under the rules of the London Bullion Market Association.

Finally, there is one other layer between the Trustee and a normal shareholder. The Trustee only deals with "Authorized Participants" who are generally large financial firms that are required to maintain unallocated bullion accounts through which gold can be traded with the Custodian. The Authorized Participants get to buy and redeem shares in 100,000-share increments called "Baskets" which they can then subdivide and sell to individual investors. One interesting aspect of this is that an individual GLD shareholder cannot redeem his shares for gold; he has to work through his brokerage (the Authorized Participant). The brokerage can get gold in exchange for redemption of 100,000-share blocks of GLD, and it can presumably sell that gold for currency and pay the individual investor, but the individual investor must rely upon his brokerage for the conversion. If one's brokerage fails, then the accounts ought to be transferred to another brokerage without loss, unless there are shares missing, in which case the Securities Investor Protection Corporation ought to replace the shares. There are many Authorized Participants, so it would probably take systemic failure to be left with unredeemable shares.

Here are some items from the GLD prospectus that concern me:

#1: The gold is not necessarily insured.

The Trust does not insure its gold. The Custodian maintains insurance with regard to its business on such terms and conditions as it considers appropriate. The Trust is not a beneficiary of any such insurance and does not have the ability to dictate the existence, nature or amount of coverage. Therefore, the Custodian may not maintain adequate insurance or any insurance with respect to the gold held by the Custodian on behalf of the Trust. In addition, the Custodian and the Trustee do not require any direct or indirect subcustodians to be insured or bonded with respect to their custodial activities or in respect of the gold held by them on behalf of the Trust. Consequently, a loss may be suffered with respect to the Trust’s gold which is not covered by insurance and for which no person is liable in damages.

In contrast, the bullion holdings of CEF are explicitly insured. Now, to be fair, large-scale losses to theft or disaster seem unlikely, but that's the point of insurance -- to protect you from an unlikely, yet catastrophic, event.

#2: Temporary "subcustodians" (e.g. transport services) are not directly monitored to ensure good practices.

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

On the one hand, since we're talking about professional armored car services and the like, one supposes that the procedures are probably pretty good. On the other hand, when this much money is at stake -- and the assets are uninsured -- the lack of explicit oversight seems very questionable.

#3: The Trustee is not independently checking to confirm that the "gold" being purchased is up to snuff.

Neither the Trustee nor the Custodian independently confirms the fineness of the gold allocated to the Trust in connection with the creation of a Basket. The gold bullion allocated to the Trust by the Custodian may be different from the reported fineness or weight required by the LBMA’s standards for gold bars delivered in settlement of a gold trade, or the London Good Delivery Standards, the standards required by the Trust. If the Trustee nevertheless issues a Basket against such gold, and if the Custodian fails to satisfy its obligation to credit the Trust the amount of any deficiency, the Trust may suffer a loss.

Again, if everybody does what they are supposed to do (probably involving the procedures of the London Bullion Market Association), there should be no problem. But again, the lack of oversight and legal protections in case of fraud is very troubling.

#4: Because of the structure of the Trust, regulatory and legal protections are very limited.

Shareholders do not have the protections associated with ownership of shares in an investment company registered under the Investment Company Act of 1940 or the protections afforded by the Commodity Exchange Act of 1936, or CEA.

As interests in an investment trust, the Shares have none of the statutory rights normally associated with the ownership of shares of a corporation (including, for example, the right to bring “oppression” or “derivative”
actions).

The liability of the Custodian is limited under the agreements between the Trustee and the Custodian which establish the Trust’s custody arrangements, or the Custody Agreements. Under the Custody Agreements, the Custodian is only liable for losses that are the direct result of its own negligence, fraud or willful default in the performance of its duties.

This doesn't seem very satisfactory. I think that CEF may be subject to more regulatory controls, but I need to verify this. (And digging through one prospectus tonight is more than enough for me!)

#5: Gold involved in a transaction is not segregated.

Gold held in the Trust’s unallocated gold account and any Authorized Participant’s unallocated gold account will not be segregated from the Custodian’s assets. If the Custodian becomes insolvent, its assets may not be adequate to satisfy a claim by the Trust or any Authorized Participant. In addition, in the event of the Custodian’s insolvency, there may be a delay and costs incurred in identifying the bullion held in the Trust’s allocated gold account.

The majority of GLD's bullion is segregated, and allocated specifically to the Trust. However, bullion that is either being purchased or sold by the fund is transfered to an unallocated gold account for the transaction.

#6: I didn't see much in the prospectus regarding audit of the bullion holdings.

[ASH]

Re: Paper gold market defaults loom ?

You might take a look at some info I recently posted on the subject of IRA's + gold:

http://www.itulip.com/forums/showthr...50480#poststop

Yeah. Adding to that... I assume you IRA guys know that you can roll-over your IRA from one brokerage/financial institution to another without taking a tax penalty? As long as the proceeds go into a new IRA (of the same type), there should be no tax implications. Thus, you can leave an IRA-provider with few options for a more flexible one.

[Guest]

Re: Paper gold market defaults loom ?

Jurg Kiener of Swiss Asia Capital talks about paper precious metals market default and gold price spike

Posted on October 7th, 2008 by Bank REO

This was a good video on CNBC about the Comex futures market and the possibility of some defaults on precious metals futures contracts because of increase physical demand of gold bullion, especially in the retail weights of 1 ounce gold coins and bars. Jurg Kiener of Swiss Asia Capital said if this happens, we should see the spot price of gold to double in very short order, suggesting it would be in under 12 months citing how small the market is compared to other commodities like oil.

Personally, I have talked to a bunch of bullion dealers and they have told me about the huge demand they are seeing and that they are to the point where they are starting to turn certain orders away because they are starting to lack confidence that the other bullion dealers and clearinghouses will be able to deliver as promised. Watch the video and leave your comments below.

Video Link:

Jurg Kiener of Swiss Asia Capital talks about Paper Gold and Comex

Trying to embed:

[media]http://www.cnbc.com/id/15840232?video=880574352[/media]

[Supercilious]

Re: Paper gold market defaults loom ?

Can someone lay out a credible scenario has how GLD defaults might go down and leading edge warning signs to watch?

I can tell you how ETF-ETN paper goes down, but I'm not a credible source.

The ETN-ETF instruments were discussed in some detail and plain language at the oil bubble thread but deleveraging and collapse of paper-virtual commodities instruments was not clearly spelled out.

First it should be clear that there are three types of paper gold:
A) trust (such as CEF and, as some here say but I have not verified myself, GTU). A gold paper to qualify as a trust share is like a teenager being pregnant: there is no middle ground. Any gold paper is a trust paper if:

1- for every dollar in the redemption value of a share there is a corresponding physical amount of PM (gold, silver or a mixture of both) at the spot price (for example for CEF has to have at all times 99% of the redemption value in a mix of silver and gold)- no leveraging and no partial holding of gold in futures contracts allowed.
2- all gold or PM has to be stored in a separate area of a bank vault (a leased area) - the bank cannot have access to the PM stored by a trust and access to that gold is allowed for trust members or employees only on special occasions, approved by the board (depositing newly acquired bullion or withdrawals for redemption sales)-or in simple terms: nobody touches that bullion if there isn't a change in the number of shares.
3- all bullion (every ounce of it) has to be unecumbered- it cannot be leased or used as a collateral of any sorts (it can be used as a collateral only for a loan required for buying more physical metal, and that loan has to be covered pronto from offering of additional shares)
4- there is no special index, of any sort, used for calculation of the redemption value of a share. That value is determined only by the spot price that day (or the next 3 business days from the date of the request for redemption).
5- as a rule of thumb, no gold trust can be created in US (it's still illegal). So, if it's based in US, it's not a gold trust. From what I gathered from other iTulipers, it is legal to create a gold trust in Switzerland, Australia, Canada and UK (other countries maybe but I have no reliable data on that)

If it doesn't meet all these 5 criteria, it is not a gold trust, regardless what are they saying in the prospect.
Now, in many cases there is an annual dilution of PM held for a share. Let's say that, at offering, each share was corresponding to 1 oz of gold , next year each share has a redemption of .99 oz of gold. That is normal, because they have to cover operating expenses (vault space renting, salaries, building rent etc), but if the dilution rate is above 1-2% on a yearly basis, some board members really love their salaries... and that IMHO doesn't look good.

Another normal thing is that there is a redemption value for a share (it's like a share buy-back value through the trust) and a market trading value (the value at which other investors trade that share and it is the price of a share you see on google, yahoo or you trading terminal) There is nothing wrong with that, and in many cases the market value is higher than the redemption value (investors are ready to pay a premium in order to keep their money in a gold trust).

In many cases redemption is accepted only on a weekly or monthly term (a certain day every week or every month) and only in large packets/blocks of shares (100000 shares for example), There is nothing wrong with that, because most gold trusts hold their gold in big bars of bullion. Nobody wants to have a bunch of Joe Shmoe screaming to redeem each $40 dollars worth of gold. The overhead would be a killing.

Three are three risks with gold trust paper:
- government nationalization/confiscation like FDR did in 30's - you may loose over a weekend 10-40% of the dollar value of your gold. (Shortly after forced redemption, the government may devalue the currency to whatever they want, but you still have time to put your money in something else, if you move fast.)
- there is a major gold bubble crash and, by the time you can sell your shares to a large wealthy redeemer, you get stuck with the paper, loosing money while the price is still crashing (that may happen to bullion too). If you don't sell the shares the bullion still waits for you in the vault.
- there is a bank heist and the gold gets stolen (you may get robbed of physical gold in your own home)

In conclusion, trust PM paper is the safest paper you can get. But be careful and verify for yourself if that paper is a real trust and not some ETF-ETN in disguise.
__________________________________________________ _________

Gold based bank bonds (aka bullion ETF's or ETN's) have very little to do with owing bullion. Regardless if they are based on gold, oil, corn or even securities, ETFs and ETNs have the same characteristics (explained in detail and simple terms at the oil bubble thread)

There are very few pure ETF's and pure ETN's, most being actually a mixture of the two extreme cases. The basic difference between them is that a pure ETF is an unleveraged investment fund, hedged completely against a traceable security/commodity (physical gold or gold futures, oil futures, cocoa futures etc), while a pure ETN is a fund hedged completely against another ETN and/or a private equity pool (it's a system based on a complimentary pair )

B) A (true) pure gold ETF (I couldn't find yet any gold ETF that is for sure a pure/real ETF) has the following characteristics:

1- every dollar of the redemption value of a share is covered by a corresponding (according to the spot price) amount of gold in gold futures or/and bullion
2- all gold holdings (paper and/or bullion) are completely unencumered (not used as some sort of collateral, leased etc and held in unallocated accounts)
3- the redemption value of a share is calculated only based on a spot price (no special, proprietary and black box Index that is "designed to track the price of gold)

GLD seems to be the closest thing to a pure ETF (it's almost a gold trust) and it's good they hold only bullion, but I couldn't find any clear mention of the fact that the Trustee itself cannot use the gold as a collateral or lease it (the Custodian -the bank with a vault- has to hold it in an unallocated account, but I'm not sure that is enough)

In addition to what ASH said in his excellent post, I want to put two quotes from last year's 10-k :

Shareholders do not have the protections associated with ownership of shares in an investment company
registered under the Investment Company Act of 1940 or the protections afforded by the Commodity
Exchange Act of 1936 or CEA.
The Trust is not registered as an investment company under the Investment Company Act of 1940 and
is not required to register under such act. Consequently, Shareholders do not have the regulatory
protections provided to investors in investment companies. The Trust will not hold or trade in
commodity futures contracts regulated by the CEA, as administered by the CFTC. Furthermore, the
Trust is not a commodity pool for purposes of the CEA, and none of the Sponsor, the Trustee or the
Marketing Agent is subject to regulation by the CFTC as a commodity pool operator or a commodity
trading advisor in connection with the Shares. Consequently, Shareholders do not have the regulatory
protections provided to investors in CEA-regulated instruments or commodity pools.

In my reading, it means that by buying a GLD share you are entitled to put you money into a GLD share. Period. Investor protection ... forget about it ...



And:

Baskets may be placed by an Authorized Participant on behalf of multiple clients. As of the date of
this report, Bear Hunter Structured Products LLC, Bear, Stearns & Co. Inc., BMO Capital Markets
Corp., CIBC World Markets Corp., Citigroup Global Markets Inc., Credit Suisse Securities (USA)
LLC, Deutsche Bank Securities Inc., EWT, LLC, Fimat USA, LLC, Goldman, Sachs & Co., Goldman
Sachs Execution & Clearing, L.P., HSBC Securities (USA) Inc., J.P. Morgan Securities Inc., Lehman
Brothers Inc., Merrill Lynch Professional Clearing Corp., RBC Capital Markets Corporation and UBS
Securities LLC, have each signed a Participant Agreement with the Trust and, upon the effectiveness
of such agreement, may create and redeem Baskets as described above.

Only Authorized Participants can redeem shares in baskets. The Average Joe shareholder can only trade these shares with another Average Joe. If there is gold price crash or a panic on a certain ETF, the trading value of a share can go well below the decline in gold price (redemption value). Of course, the smart big and tough boys (Authorised Participants) can scoup the undervalued shares and redeem them for a good profit, because of a redemption bottleneck.(It's much more difficult for Average Joe to buy-low/sell-high, but it's very easy for him to take a big loss)


__________________________________________________ ___

C) A pure ETN. Here things are a little bit surreal. IMHO and completely unqualified opinion some ETN's are almost like an independent betting house' providing an excellent source of liquidity for banks and possibly for hedge funds.

Forget about gold. Let's say that the $#* Bank makes a leveraged-ETN offering, dedicated to the retail price of condoms in Zimbabwe. How that works?
I launch two mirror funds:
a) Zimbabwe Ultrashare Condoms 2x Long (ZUCxL) which offers double exposure to the increase in the retail price of condoms in Zimbabwe- the offering has 10 shares @ $100 (USD) /share.
b) Zimbabwe Ultrashare Condoms 2x Short (ZUCxS) which offers double exposure to the decrease in the retail price of condoms in Zimbabwe - the offering has 10 shares @ $100 (USD) /share.

In some of the ETN pair offerings, you will see that each member of the pair tracks the reference price of something ( gold , oil, cocoa etc) through two different indexes: an index for the short ETN and an index for the long ETN. That is not very good, because the investor has no way to determine if he/she is shafted or not.

Let's say that you buy all the 10 shares of the ZUCxS (because you think the price will go down) and ASH buys all shares in ZUCxL (believing the price will go up).

The nice part is that the originator of an ETN (my bank in this case) doesn't have to hold any actual commodity or commodity futures. I don;t care what kind of condoms they use in Zimbabwe. The bank has only to act as if it holds futures or the respective commodity.

In this situation my bank gets $2000, I can use as hard cash liquidity to cover black holes created by a toxic CDO.

You and ASH are holding some nice shares, betting against each other and watching mesmerized the daily evolution of the price of condoms in Zimbabwe, while I got your cash as an interest free loan.

OK, let's suppose that in one year the price of condoms in Zimbabwe went up 30%. According to this case, the shares of (ZUCxL) should go up 60% and the shares of (ZUCxS) should go down to 40% of the initial value... Not so fast, because I have two different indexes, which are designed only to reflect/approximate the price of condoms, and there are management fees... that can make a big difference

Actually after one year, for a 30% increase in the price of condoms in Zimbabwe, with the help form my special indexes , your financial situation would look like this:
Ash - 10 shares of ZUCxL @ $150 ea = $1500
ltullos- 10 shares of ZUCxS @ $30 ea = $300
My bank has to redeem only $1800 worth of ETN paper (paired shares), after I got from the initial offering .... $2000. This is called obtaining liquidity at (-10)% interest rate. Pretty good deal....

Now, let's say itulos decides to redeem half of his shares (5 shares at $30 ea- 150$) to reduce his exposure and loss. At this moment I have to hedge the corresponding half of ASH's shares in condom futures (I can buy those futures paying only one tenth of the actual price of the commodity).

This is called pair decay. ASH will have 5 shares hedged against the 5 remaining shares held by itulos (like in a pure ETN) and 5 shares hedged in condom futures (like in a pure ETF) . Therefore the component ZUCxL becomes 50% ETN and 50% paper ETF, while remains pure ZUCxS ETN. Further pair decay the ETN moves more towards an ETF. ( Vice versa is valid for a pure ETF: if I have a pure long ETF and I find another short fund to partially hedge it against, I can convert that dollar hedged part into an ETN and get a load of cash for free or at negative interest rates.)

In the second ASH-itulos case, my bank, instead of having the whole $2000 as free liquidity, has to pay back to itulos $150 (redemption of 5 shares @30 ea) and to buy $75 worth of futures (for hedging ASH's widowed shares). Basically my ETN liquidity cash cow is reduced to $1775. Still good.

But, remember that those $2000 obtained from the initial offering, are long time gone and used for covering CDO paper loses. My bank is barely surviving. If ASH decides to sell half of his high value shares, even if I can cover them with futures, I'll have loose half of the liquidity and ... I'm doomed. My bank can go under and the ETN paper becomes worthless.

In the case of Lehman's OPTA ETN's , obviously there is no way Lehman can redeem all that paper. Currently, Lehman's debt was trading at 18 cents on a dollar. In best case scenario the holders of the ETN would recover maximum 18% of the last redemption value.( The IIV price)

Therefore, IMHO the loss for ETN paper maybe almost complete. Signs to look for danger in an ETN pair:
-decrease in the number of shares of the high value component (results in a liquidity squeeze on the bank)
-tracking anomalies (an increased discrepancy between the tracking of a gold ETN and the share value of a real gold trust or the spot price)
- the trading value of the ETN going bellow the Intraday Indicator Value (approximate redemption value)- that means there is no rich idiot ready to buy a big block of shares from the market and redeem them with the bank.. because the bank is in trouble.. and the rich redeemers know that
-share collapse and/or liquidity problems of the originator bank. There were a lot of people who made good money by shorting OPTA ETN's when it became clear Lehman is going down.

Sorry for the long post, but in recent days a lot of people were asking the same questions.

These are my personal and unqualified opinions and should not be taken as any form of business advice. Please read the ITulip Disclaimer at the bottom of the page, and if any iTuliper spots any mistakes please correct me ASAP.

addition: Some stand alone ETF's can be actually partial ETN's, because they may be partially hedged against a dark, invisible pair (private equity money from dark pools betting against the commodity) and the small investor has no means to figure that out.

[sishya]

Re: Paper gold market defaults loom ?

$#* - Thanks for your insight. Basically this says - trust but verity,verify and verify again.

[Andreuccio]

Re: Paper gold market defaults loom ?

Ash and $#*: Great posts. iTulip really shines as a place to get a good understanding of financial matters. Thanks for investing the time here.

[ASH]

Re: Paper gold market defaults loom ?

Ash and $#*: Great posts. iTulip really shines as a place to get a good understanding of financial matters. Thanks for investing the time here.

You're welcome, but I caution you to treat my post as more of a "book report" after having read the GLD prospectus, rather than "shrewd financial advice".

[photoncounter]

Re: Paper gold market defaults loom ?

I'm holding a position of GLD within my IRA as this is the only practical way that I know to invest in gold through this account. I'm well aware of the warnings against holding paper, but have rationalized that so long as I leave the party early and don't get trampled by everyone rushing to the exit I'll be OK (sure I'm the only one thinking this). Anyway, I not so comfortable with this decision, but just feel it is better alternative than leaving these funds sitting in gov't bonds. Can someone lay out a credible scenario has how GLD defaults might go down and leading edge warning signs to watch?

Actually, that is exactly what I have been thinking. Bail out from the paper PM's before things get really nasty. Hopefully, that will work ! I hold CEF though and in much smaller % compared to physical PM.

[LargoWinch]

Re: Paper gold market defaults loom ?

Looking at the recent events, I am starting to seriously fear that governments will make gold holding illegal.

What is the plan for that?

[ASH]

Re: Paper gold market defaults loom ?

Looking at the recent events, I am starting to seriously fear that governments will make gold holding illegal.

What is the plan for that?

There was some discussion of this on the capital controls thread...

I would think that c1ue, jtabeb, and some of the others have pretty good insights here.

Bearing in mind that I personally think the government's motive to confiscate gold will be minimal unless there is an utter currency collapse and they need a hard basis against which to back a new currency (and therefore haven't thought through a very elaborate strategy), here are some potential plans:

1) Own (and hide) physical gold. Wait for the laws to change back (as they eventually did in the US), or possibly smuggle the gold to somewhere you can trade it legally, or use it in the black market. (Yes, this makes you a criminal... unless you can correctly guess which countries won't outlaw private ownership and find a way of stashing your gold there.)

2) Find an alternate hard asset (productive farmland?) or passive income-generating asset tied to some necessity (shares in an energy master-limited partnership?) to move your wealth into.