Gold ETF/ETN collapse?

[Supercilious]

I don't now much about gold, but I'm a big fan of ETF-ETN paper (not pure ETF's ... the "good" ones).

Got this form Kitco:
http://www.kitco.com/ind/Rubino/oct012008.html

This week I received an e-mail from a Swiss money manager, a friend and trusted source. He informed me that a very large and conservative Swiss bank had informed a number of their clients that they would no longer be offered paper gold or silver certificates in the bank’s name. It seems the bank had previously granted the accounts because it was able to protect itself against an upside move with a derivatives contract with another financial institution. Due to the financial turmoil, the bank was no longer comfortable with the counterparty risk from the other financial institution. Instead, the Swiss bank informed its clients, all paper transactions had to be converted to physical or physical ETF positions (There are Swiss ETFs for gold and silver). My friend informed me that other Swiss banks were likely to follow this bank’s lead.

IMHO this is deleveraging and high couterparty risk hitting all gold paper based on leveraged ETF-ETN mix intruments.

Only pure (compeltely unleveraged and directly anchored) ETF's and gold trusts seems to be safe... the rest ... house of cards

[jtabeb]

Re: Gold ETF/ETN collapse?

Only pure (compeltely unleveraged and directly anchored) ETF's and gold trusts seems to be safe... the rest ... house of cards

No, but the metal itself in physical form, is.

[Guest]

Re: Gold ETF/ETN collapse?

I read that too. Very interesting. Smart of them to dissociate themselves formally from having any dealings with the ETN vehicles before the doorway becomes jammed with other "fleeing elephants".

The Perth Mint also, IMO, is a writhing can of worms under the surface. They are supposed to be a pure custodian but they are into gold and silver leasing bigtime I think.

[grapejelly]

Re: Gold ETF/ETN collapse?

I sold an ETN yesterday because my understanding is that ETNs are only as safe as the counterparty bank. But that is an Exchange Traded Note, and I don't understand them anyway. An ETF seems a lot clearer to me (we are all in trouble when something seems clear to me.)

But I don't go for this paper gold stuff anyway...

[Spartacus]

Re: Gold ETF/ETN collapse?

I don't now much about gold, but I'm a big fan of ETF-ETN paper (not pure ETF's ... the "good" ones).

Got this form Kitco:
http://www.kitco.com/ind/Rubino/oct012008.html



IMHO this is deleveraging and high couterparty risk hitting all gold paper based on leveraged ETF-ETN mix intruments.

Only pure (compeltely unleveraged and directly anchored) ETF's and gold trusts seems to be safe... the rest ... house of cards

The european banks holding a massive short position is an original Ted Butler idea - he wrote of it in 2003, I think - I read it later when I went back over his archives.

It's a massive invisible, naked short position on Silver, largely by European banks, but probably by banks all over the world.

And I know it has to be true of Canada too (the banks sell Silver certificates with no Silver backing, a naked private short position not recorded on any exchange). When I first got into Silver I tried with several Canadian banks before I found the Scotiabank precious metals desk, AKA Mocata Toronto office.

Several of the banks
1. wanted to sell me certificates
1a. no serial numbers, no proof that there is any Silver there
2. would store the certificates for me (I bet these were electronic entries, not even "real paper Silver" which they wanted to "store in safe storge" for a massive fee, a much higher fee than a large safety deposit box)
3. for a large fee (several percent of the value of the certificates per year)
4. not let me look at the certificates (!!!!!) - would not send a copy or FAX

[Guest]

Re: Gold ETF/ETN collapse?

Spartacus - Would appreciate reading somewhere here your examination of the plausibility of the EU banks short positions being naked covers for "custodial non-existent silver", and an examination of the points substantiating Butler's claims on that. I have never fully understood the nuts and bolts of his assertion there.

The european banks holding a massive short position is an original Ted Butler idea - he wrote of it in 2003, I think - I read it later when I went back over his archives.

It's a massive invisible, naked short position on Silver, largely by European banks, but probably by banks all over the world.

And I know it has to be true of Canada too (the banks sell Silver certificates with no Silver backing, a naked private short position not recorded on any exchange). When I first got into Silver I tried with several Canadian banks before I found the Scotiabank precious metals desk, AKA Mocata Toronto office.

Several of the banks
1. wanted to sell me certificates
1a. no serial numbers, no proof that there is any Silver there
2. would store the certificates for me (I bet these were electronic entries, not even "real paper Silver" which they wanted to "store in safe storge" for a massive fee, a much higher fee than a large safety deposit box)
3. for a large fee (several percent of the value of the certificates per year)
4. not let me look at the certificates (!!!!!) - would not send a copy or FAX

[Supercilious]

Re: Gold ETF/ETN collapse?

An ETF seems a lot clearer to me (we are all in trouble when something seems clear to me.)

But I don't go for this paper gold stuff anyway...

grapegelly there are few pure ETF's or pure ETN's on the market. Most of them are actually disguised ETF-ETN mixes. ETN's get in time an ETF component by pair decay, while ETF's can get an ETN component by leverage, "unfavorable' spot price fluctuation etc

IMHO not all ETF's are equal. If the originators of those ETF's are as risk adverse as those people who were doing risk rating for CDO's, they may actually be ETF-ETN mixes in various degrees of virtual "possession" of gold. In such case, IMHO, the small investor has no chance in assesing an obscured risk.

IMHO opinion it is very easy to hide an ETF-ETN virtual money making machine, if the redemption value of the share is calculated according to a black box propietary Index (determined by the originator or an "independent" body) that is supposed only to "approximate" the fluctuation/value of the spot price. That is a serious red flag, although not a proof of any Enron-style management.

I discussed this in detail (including the pair decay and ETF-ETN unnatural relation) at the Oil Bubble thread.

I don't know how is for gold, but in many cases small investors cannot clarely understand, what exactly are they puting their money into.

For gold I looked only into CEF, and according to my unqualified opinion that is a trust that is eroneously presented as an ETF on many investment sites. CEF and similar funds are not ETF's and IMHO are the next best thing to owning physical gold being much safer than a pure ETF

I tried to look into GLD and SLV to find out if it's a pure ETF (the safest kind) or a disguised ETF-ETN mix (I wouldn't touch that), and I couldn't find any clear proof one way or another.

The Kitco message indicates that a conservative Swiss bank seems to seek the safety of trusts of physical gold (such as CEF) and pure gold ETF's (there must be some of those out there) avoiding all contact with anythign that can be suspected of being an ETF-ETN mix in disguise.

[Guest]

Re: Gold ETF/ETN collapse?

$#* - What might you have heard about the extent of leasing by the Perth Mint - i.e. their relationships with Johnson Matthey?

CEF and similar funds are not ETF's and IMHO are the next best thing to owning physical gold being much safer than a pure ETF.

Kitco's online store sells Perth Mint Certificates. https://online.kitco.com/

The Perth Mint owns 40% of AGR Matthey. http://www.perthmint.com.au/about_us...structure.aspx

They admit that they may have loaned stored metal out.

PERTH MINT QUOTE: "The $880 million of precious metals deposited by Perth Mint Depository clients (note 17) was used in operations by Gold Corporation as inventory ($381 million - Note 8b) with the balance in the refining operations of AGR Matthey (Note 8a). http://www.perthmint.com.au//documen...ort%202007.pdf

At page. 81, (bottom) it reads: JOHNSON MATTHEY QUOTE: "AGR Matthey has well established relationships with the major bullion banks and regularly supplies to them on a contractual basis. http://www.agrmatthey.com.au/wps/wcm...llion_product/

JOHNSON MATTHEY QUOTE: "An innovative treasury is as important as refining efficiency," http://www.agrmatthey.com.au/wps/wcm...ut_agrmatthey/

"Treasury undertakes a leasing program to either lend or borrow precious metal within the terms of a lease agreement between AGR Matthey and approved counter parties." http://www.agrmatthey.com.au/wps/wcm...sury/services/

The Mogambu Guru Writes:

"Unallocated gold is the most widely traded form of gold in the world. While this gold remains unallocated to you, the regulator considers it part of a bank's liquid reserve." He figures that 99% of gold deposits are in unallocated form, and therefore all the deposited gold is, in effect, in a big commingled pile in the basement of the bank.

Another way of looking at this stunning fact is, "This makes unallocated gold an attractive way for the bank to maintain its regulated liquidity, because you have paid for your gold, and the bank is free to use your money, while it is also able to add your unallocated gold holding to its own reserve."

http://www.dailyreckoning.co.uk/gold...-to-trust.html

[jk]

Re: Gold ETF/ETN collapse?

i'm curious what you guys think about bullionvault.

[Spartacus]

Re: Gold ETF/ETN collapse?

I listed basically all my personal experience. They sell you Silver but they have no metallic Silver. It's a Silver short position.

If they have other derivatives "insuring" the Silver position against losses that does not IMHO make the short non-naked.

I can't parse this this next thing at all - maybe you typed it incorrectly? You can cover a naked position, IOW you could buy a cover FOR a naked position (buy a warehouse full of Silver), at which point it's no longer a naked position, but what's a "naked cover"? As I understand it, a cover can't be naked, by definition. And I can't make sense of the other thing either.

naked covers for "custodial non-existent silver"

I have no personal experience with European banks on this.

I listed my reasons for suspecting (suspecting, not proving) several Canadian banks are naked short (they sell "Silver" but have none). Just to be repetitive, If they have derivatives protecting the naked position, IMHO that does not make the position non-naked. It insures the bank against losing money on the short position, but it does not ensure that the buyer will get what he thought he bought (real, metallic Silver).


The recently concluded US fraud lawsuit (Morgan Stanley or Merrill Lynch, I forget which one) for "storage fees" on non-existent Silver proved that specific bank/brokerage was naked short Silver.

[jtabeb]

Re: Gold ETF/ETN collapse?

i'm curious what you guys think about bullionvault.

you mean "I promise that it will be there when you need it" vault.

I would not trust any counterparty, no matter how well documented.

[tastymannatees]

Re: Gold ETF/ETN collapse?

All the debate about Perth unallocated seems overstated. If anybody is really worried about it they do have an allocated program pay extra for the peace of mind. It takes it off the books in case bankruptcy, you own it, it's in a vault same as anywhere else. I think the only real debate is which country it is safer in.

[Supercilious]

Re: Gold ETF/ETN collapse?

$#* - What might you have heard about the extent of leasing by the Perth Mint - i.e. their relationships with Johnson Matthey

I have no idea about such a relationship and I don't know gold. Until recently (the AIG collapse) I had no PM portfolio. Now I have 90% of my portfolio in safe mode and I have only 10% left to play (it's getting boring to have nothing to do and just watch numbers and crack conspiracy theories )

Since I promised myself to stay out of financials, I decided to try gold for very short term investment. I was short on gold until today, covered and went long.... Brobably I'go short again on monday when the circus in the Clowngrees ends.

By the way, using a simple google chart one can get an iddea between the difrence between a pure gold trust (like GTU for example) and a gold ETF (like GLD for example). Just use the compare tool and consider you started puting money in gold paper 3-4 years ago ...

[Guest]

Re: Gold ETF/ETN collapse?

$#* - Yes, I noticed that mention of yours between the gold tracking of and ETF like GLD and the tighter gold tracking of the GTU gold fund. Your point was not lost on me and it's instructive.

JK - I think BullionVault's auditing process is about as stringent as one can get. I would frankly rate them a good deal better than Perth, partly because their auditing is so much more stringent, partly because their allocated storage has a lot less dancing around and games attached to it. I think Mr. Tustain's outfit is upstanding and highly scrupulous on the auditing end. But I have a list of articles as long as my arm of Perth Mint clients trying to actually get silver bullion moved from their "pooled accounts" into an actual personal account where they could inspect their silver, let alone request it's availability for pickup.

Actually as far as trustworthiness in BullionVault and GoldMoney are concerned they are really not bad (for gold OK, but perhaps distant storage for silver requires even more stringency these days). But the big point about these storages is their domicile - these instruments are incorporated in the UK, (both SLV for example and BullionVault are UK domiciled) and if things got really, really ugly I don't trust them to not comply instantly with US gold and silver "edicts". So I think they work fine for 80% of the trajectory, but if/when you get into any really seriously ugly times they have a component at risk of catastrophic failure, in that they can simply be folded up by national decree.

Hence a storage facility that is incorporated in Switzerland for instance, that is strictly Swiss is in my opinion a good deal more sound for the complete term. That's just my instinct, but it may well be that things never get that bad that these become issues. The point is here whether when it comes to buying and storing gold, one subscribes to the notion of 80% insurance policies, rather than 100% insurance policies. There is no such thing as 80% insurance if your house burns down. Such insurance is not really serious insurance at all, and that's the problem with these large commercial storages in countries like the UK, as joined at the hip to the US in their corporate domiciles as is Bullion Vault. GoldMoney is little different, in the Channel Islands.

I have no idea about such a relationship and I don't know gold. Until recently (the AIG collapse) I had no PM portfolio. Now I have 90% of my portfolio in safe mode and I have only 10% left to play (it's getting boring to have nothing to do and just watch numbers and crack conspiracy theories )

Since I promised myself to stay out of financials, I decided to try gold for very short term investment. I was short on gold until today, covered and went long.... Brobably I'go short again on monday when the circus in the Clowngrees ends.

By the way, using a simple google chart one can get an iddea between the difrence between a pure gold trust (like GTU for example) and a gold ETF (like GLD for example). Just use the compare tool and consider you started puting money in gold paper 3-4 years ago ...

[raja]

Re: Gold ETF/ETN collapse?

i'm curious what you guys think about bullionvault.

If you think there's going to be a run-up mania in gold, then a crash, BV might be hard to exit quickly when you try to get out near the top . . . because you're only trading with a limited number of traders consisting of other BV members who probably think like you do . . . .

If you think there will be a SHTF scenario, then you run the risk of gov't interference with BV . . . and when you want to cash out the money's got to go into a US bank . . . unless you move out of the US.

CEF/GTU is in Canada. Switzerland is probably safer, but Canada is still outside of the US, so I'd rate CEF/GTU's safety only slightly less than BV.

What I'm debating now is whether to take delivery of the certificates. If the SHTF to the degree that my brokerage account somehow screws up the registration, then I'd rather be holding the certificates . . . but they are rather cumbersome when the time comes to sell.

Of course, if the SHTF in a big way, then even having the certificate might not help. At that point, better to trade eigths of a gold coin for a cow, in which case only physical gold is going to help you.

In addition to gold, our other hedge against SHTF is that we've bought and moved to a small farm in rural America. (The value of chickens should keep up with inflation ) I had never done anything other than gardening before, and I was surprised to learn how easy it is to grow a garden and raise some livestock (a few chickens, sheep, goats, cows). All that's required with livestock is to set out food and water twice a day, takes about 20 minutes . . . .

I'm assuming that more and more people will begin to think like me, so I'm now in the process of buying up a few small farms in the area and setting up turn-key mini farms to sell to city slickers who fear the SHTF scenario as much as I do. How's that for a prosper-during-adversity strategy? I hope it works . . . buying property during a RE collapse is a little scary :eek: