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The Strange Case of Dr. GLD & Mr. Bullion

by: Graham Summers August 22, 2008 | about stocks: GLD    

Graham Summers

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Gold’s been acting fishy…

Gold is somewhat unique amongst investments in that it trades both in physical form—bullion, or the actual metal—and as an equity—the Gold ETF (GLD). The differences between the two forms of gold are striking:

Gold ETF Bullion
Extremely liquid Far less liquid
Requires an online brokerage account Requires an actual dealer
You own a % of a trust that owns actual gold You own actual gold
Can be manipulated by traders Cannot be manipulated by traders
Is an equity-based inflation hedge Catastrophe insurance

As you can see, gold trades in two very different forms. And the differences between the two investments go a long way towards explaining the massive discrepancy occurring between the “paper” and “physical” gold markets today.

Gold, as you may or may not know, recently violated its 65-week moving average: a metric that is widely used to measure whether or not an investment is in a bull market. The pundits, seeing this, announced that gold was in serious trouble. Of course, no one bothered to mention that much of the selling in gold was the result of overleveraged hedge funds and others unloading their “paper” gold positions when the dollar rally began.

And while “paper” demand for gold has plunged, “physical” demand, particularly for coins, has exploded upwards. In fact, demand has been so high that the US Mint announced it was temporarily suspending sales of American Gold Eagles, a popular bullion coin, due to shortages.

David Beahm, VP of Blanchard and Co, one of the largest US bullion dealers, told Reuters that both the American Eagle and American Buffalo one-ounce gold coins are completely sold out. "Nobody has the Eagles or the Buffalos right now. We bought 2,000 ounces late last week, and those were the last 2,000 ounces that we can find in the marketplace," said Beahm.

Beahm’s not the only one.

I called up my friend Parket Vogt at Camino Coins. Camino’s been dealing bullion for 50 years and Parker says he’s never seen anything like the action of the last week. “Graham, people are going nuts. I actually had to stop selling Krugerrands because premiums are too high. One guy actually called up and bought 500 ounces of gold in one order. That is the single largest sale I’ve had in my entire career.”

In light of this, it’s tempting to assume gold will explode back up to $1,000 in no time at all. However, from a historical perspective gold could also continue a gradual slide for another year. I’ll explain…

During the last major gold bull market—1971-80—gold first exploded upwards from $35 to $200 in 3.5 years. It then followed this performance with a 19-month correction during which time gold retraced 50% of its initial gains. It didn’t retest its $200 highs until 1978, eventually topping out at $850 in 1980.

If gold were to follow this same pattern today, this current correction—starting March 2008 with gold’s peak at $1,030—would last until the fall of 2009. So we could well see gold tread water for another year.

On the other hand, today’s market and the market of the ‘70s are very different. Today there are several potential financial crises that could light gold’s fuse: a major bank could go under, Fannie and Freddie could be nationalized, the market could crash, etc. Any one of these could push gold back up to $1,000 in a matter of weeks.

Because of this, I view this current pullback in gold as a buying opportunity. I realize I may not make money for a year. But I’m not looking to trade gold. I’m looking to own it. And the current financial climate is such that I wouldn’t be surprised to see gold back at $1,000 before the year’s end.

Hedge funds can mess around with moving averages all they like. Gold is still a great storehouse of value. And while paper gold has dropped, physical gold isn’t showing any signs of a let-up.

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This article has 48 comments:

  •  
    Aug 22 12:14 PM
    "I’m looking to own it."
    You mean take physical possession of coins and bullion and store it in a safety deposit box at your local bank.

    Or do you mean something else?
    CrossProfit
    Reply
  •  
    Aug 22 12:25 PM
    can someone explain how the GLD ETF could be manipulated by traders? my understanding was that each share was 1/10th ounce of Au and priced at 1/10th the current spot price of gold.
    Reply
  •  
    Aug 22 12:28 PM
    Thanks very much. Most interesting. I own bullion and may add more if the price stays down. To me it is like an insurance policy of sorts against some of the dark things that can happen. To me it is not a short-term holding or something to trade. I don't really care what the price is doing day to day.
    Reply
  •  
    Aug 22 12:34 PM
    Boy are you OUT of it. Those who buy physical gold are a very small percent of the market. These people buy gold for religious reasons (they are gold worshipers).
    1 Gold just formed a beautiful double top (second top lower then first)
    2 A credit crisis is disinflationary. (bad for gold)
    3 The dollar has turned and is on its way up (gold NEVER goes up when the dollar goes up)

    If you dont believe in the real world then live in the make believe world of the gold bugs.

    Gold is never an investment but only a trade. Gold topped with a bubble in 1980 and it took 28 years for gold holders to break even.
    Reply
  •  
    Aug 22 12:36 PM
    remigh, GLD can trade at a premium or discount to net-asset-value (NAV). Additionally, a trader could possibly naked-short GLD.
    Reply
  •  
    Aug 22 12:48 PM
    On Florin's comment, it is correct, but the ETF market makers can create more ETF units whenever the spread between the NAV and the market price gets too wide, and make a profit on the difference. That is what distinguishes ETFs from closed end funds. Closed end funds have a fixed number of shares can premiums or discounts from NAV can be substantial and last indefinitely. Small differences from NAV can persist in ETFs, or somewhat wider ones temporarily. But wide ones in ETFs lasting for more than a brief period, can be profitably arbitraged, and therefore should not occur.
    Reply
  •  
    Aug 22 12:48 PM
    Physical gold: 'Catastrophe insurance'????
    I think not, you think again.
    During exchange control times, the gov't confiscates everything of value and prohibits the use of any other notes than government issued. No, you cant, use euro, nor pound, nor gold.
    If you can bury it in your garden then it could be 'Catastrophe insurance', just make sure there is no paper trail of your delivery home.
    Reply
  •  
    Aug 22 12:49 PM
    CLH is a basher, don't pay attention to him. Just look at his track record:

    On May 28 11:32 AM he writes: "...Gold to me is going down. Dollar is going up. " seekingalpha.com/artic...

    And what did actually happen? Gold up from $650, dollar down from 80.

    On Jun 05 05:43 AM he writes: "This is last years news. Dollar going up and gold going down now." seekingalpha.com/artic...

    And what did actually happen? Gold up from $650, dollar down from 80.
    Reply
  •  
    Aug 22 12:51 PM
    JasonC, many things "should not occur." But they still do.
    Reply
  •  
    Aug 22 12:54 PM
    Nice. People are buying so much physical gold there is a shortage. If you are a contrarian investor (at least a little bit) you surely must take this as bullish for equities.
    Reply
  •  
    Aug 22 12:54 PM
    Florin- thanks. according to this data the prices appears to stay within 0.5% of NAV for the majority of the time, almost never over 1% off, and for the life of GLD fund, has never been more than 2% off the NAV : www.etfconnect.com/sel...

    so in my view, it cannot be manipulated by much and not for long. cheers.
    Reply
  •  
    Aug 22 12:57 PM
    remigh et all, enjoy...

    the scheme to suppress the price of gold is increasingly a matter of ordinary public record.

    It was a matter of public record in January 1995, when the Federal Reserve's general counsel, J. Virgil Mattingly, told the Federal Open Market Committee, according to the committee's minutes, that the U.S. Treasury Department's Exchange Stabilization Fund had undertaken "gold swaps." Those minutes are still posted at the Fed's Internet site:

    www.federalreserve.gov......

    It was a matter of public record in July 1998, six months before GATA was formed, when Federal Reserve Chairman Alan Greenspan told Congress: "Central banks stand ready to lease gold in increasing quantities should the price rise." That is, Greenspan himself contradicted the usual central bank explanation for leasing gold -- supposedly to earn a little interest on a dead asset -- and admitted that gold leasing was all about suppressing the price. Greenspan's admission is still posted at the Fed’s Internet site:

    www.federalreserve.gov...

    Incidentally, while we gold bugs love to cite Greenspan's testimony from July 1998 because of its reference to gold leasing, that testimony was mainly about something else, for which it is far more important today. For with that testimony Greenspan persuaded Congress not to regulate the sort of financial derivatives that lately have devastated the world financial system.

    The Washington Agreement on Gold, made by the European central banks in 1999, was another admission -- no, a proclamation that central banks were working together to control the gold price. The central banks in the Washington Agreement claimed that, by restricting their gold sales and leasing, they meant to prevent the gold price from falling too hard. But even if you believed that explanation, it was still collusive intervention in the gold market. You can find the Washington Agreement at the World Gold Council's Internet site:

    www.reserveasset.gold..../

    Barrick Gold, then the largest gold-mining company in the world, confessed to the gold price suppression scheme in U.S. District Court in New Orleans on February 28, 2003. On that date Barrick filed a motion to dismiss Blanchard & Co.'s anti-trust lawsuit against Barrick and its bullion banker, JPMorganChase, for rigging the gold market.

    Barrick's motion said that in borrowing gold from central banks and selling it, the company had become the agent of the central banks in the gold market, and, as the agent of the central banks, Barrick should share their sovereign immunity and be exempt from suit. Barrick’s confession to the gold price suppression scheme is posted here:

    www.lemetropolecafe.co...

    The Reserve Bank of Australia confessed to the gold price suppression scheme in its annual report for 2003. "Foreign currency reserve assets and gold," the RBA's report said, "are held primarily to support intervention in the foreign exchange market." The RBA's report is still posted on the Internet at the central bank's site:

    www.rba.gov.au/Publica.../...

    Maybe the most brazen admission of the Western central bank scheme to suppress the gold price was made by the head of the monetary and economic department of the Bank for International Settlements, William S. White, in a speech to a BIS conference in Basel, Switzerland, in June 2005.

    There are five main purposes of central bank cooperation, White announced, and one of them is "the provision of international credits and joint efforts to influence asset prices (especially gold and foreign exchange) in circumstances where this might be thought useful." White's speech is posted at GATA's Internet site here:

    www.gata.org/node/4279

    Last October the editor of the Freemarket Gold & Money Report and the founder of GoldMoney, James Turk, a longtime consultant to GATA who will be speaking at this conference, revealed some U.S. Treasury Department reports showing that since May last year the U.S. gold reserve has been mobilized for leasing to suppress the gold price. Those records are available on GATA's Internet site:

    www.gata.org/node/5637

    In complaining about the manipulation of the gold market, GATA has not been called "conspiracy nuts" by everyone. We have gained a good deal of institutional support over the years.

    First came Sprott Asset Management in Toronto, our main sponsor for this conference. In 2004 Sprott issued a comprehensive report supporting GATA. The report was written by this conference's keynote speaker, Sprott's chief investment strategist, John Embry, and his assistant, Andrew Hepburn, and was titled "Not Free, Not Fair -- the Long-Term Manipulation of the Gold Price." It remains available at the Sprott Internet site here:

    www.sprott.com/pdf/pre......

    Then in 2006 the Cheuvreux brokerage house of Credit Agricole, the major French bank, issued its own report confirming GATA's findings of manipulation in the gold market. The Cheuvreux report was titled "Remonetization of Gold: Start Hoarding," and you can find it at GATA's Internet site:

    www.gata.org/files/Che...

    And in September last year Citigroup -- yes, Citigroup, a pillar of the American financial establishment -- joined the conspiracy nuts. It published a report titled "Gold: Riding the Reflationary Rescue," written by its analysts John H. Hill and Graham Wark, declaring: "Gold undoubtedly faced headwinds this year from resurgent central bank selling, which was clearly timed to cap the gold price." You can find the Citigroup report at GATA's Internet site here:

    www.gata.org/files/Cit...

    Even those authorities who don't want to run afoul of government institutions that with a few computer keystrokes can create virtually infinite amounts of money may have to admit the opportunity for central banks to manipulate the gold market. For it is widely acknowledged that annual world gold production is about 2,400 tonnes, that annual net world gold demand is about 3,400 tonnes, that gold production is falling as demand is rising, and that the thousand-tonne gap between production and net demand is being filled mainly by central bank dishoarding and leasing. What do you suppose the gold price would be if central banks were not supplying more than a quarter of annual demand?
    Reply
  •  
    Aug 22 01:02 PM
    "I actually had to stop selling Krugerrands because premiums are too high"
    Why would he have to stop selling?
    If people are buying like nuts,willing to pay the premium,keep selling them.
    Thats called the market price.
    Hey CrossProfit,if you plan on keeping the gold for a long time take possession,coins or bullion.Keep it some place safe you can get at it fast,a safety deposit box is not the best place.Only use it as a last resort.
    Reply
  •  
    Aug 22 01:03 PM
    "Those who buy physical gold ... buy gold for religious reasons (they are gold worshipers). "

    Classic straw man assertion. Most people I know who buy physical gold - and I know quite a few - do so as a long term insurance plan because they have learned the lessons of history when it comes to fiat currency and inflation. Hardly religious. In fact, it is much more indicative of magical thinking to place your faith in technical analysis based on a measly few decades than to draw conclusions based on an analysis of thousands of years of human history.

    The 'real world' with which we are faced is unlike anything we have faced before, which means it is entirely plausible that we are moving into a new paradigm, in which case, the fundamental assumptions of technical analysis become invalid.

    It is not proven, but certainly plausible that those investing in physical gold are the ones living in the 'really' real world, and posters like the one who posted this simple minded claptrap are among the deluded.

    As to credit crises being 'disinflationary' [sic], while there are certainly deflationary *components*, this does not mean that the *net* effects of the current credit crisis - including Fed actions - will be so. Especially once you consider the $60T+ in unfunded liabilities due to governmental obligations over the next two decades. That money will have to come from somewhere and anyone with a marginal knowledge of history can tell you exactly what is going to happen. Because it is what has happened in every single case across 1000 years. Feel free to 'believe' we are somehow special, and that it can't happen here, but be aware that this is nothing more than a demonstration of historical ignorance and magical thinking.

    That is, if you think we are in a long term deflationary trend, you really need to put your faith aside for a moment and study history. It tells a different tale.

    Start here:

    www.shadowstats.com/ar...
    Reply
  •  
    Aug 22 01:08 PM
    ok only this:

    www.gata.org/node/5637

    Reply
  •  
    Aug 22 01:52 PM
    where can one buy gold coins without extreme markups, I bought coins when gold was at 1000 and they still wat the same thing when the spot dropped $200.
    Reply
  •  
    Aug 22 02:16 PM
    phinsuntanning - wow, thanks for all the info!!!!!!!!
    Reply
  •  
    Aug 22 02:23 PM
    I hate to step into the line of fire in what seems to be a religious war--can I wave a white flag and declare neutrality before posting?

    When GLD (the ETF) goes up, HSBC is supposed to issue more shares and buy more gold bullion. If my understanding is correct, this is necessary (as with all ETFs) to keep the share price consistent with the market price of gold, rather than having its own supply/demand dynamic (like a CEF). Thus, massive investments in GLD reduce the supply.

    So, with the recent dive in gold prices, more investors are selling GLD. Did HSBC sell its bullion? If so, they might be hard-pressed to meet the demand when the market reverses suddenly (i.e., now?). If not--if they kept an extra supply as a hedge--it could explain some of the reported shortages.

    I've seen the opposite argued, that brokers have issued shares of gold-related assets without actually collateralizing them with physical gold; they would then have a motive to manipulate the price downward, so they can buy the collateral more cheaply. But I haven't seen any hard evidence for either scenario.
    Reply
  •  
    Aug 22 02:52 PM
    otbricki, the problem is that there's nothing contrarian here. Just because there is a physical shortage of gold doesn't mean that the market is overly bullish on gold. From the information given, it could be that a very small portion of the market is bullish on gold. Given that the physical gold market is illiquid, shortages are bound to occur in even moderately bullish conditions, particularly if those holding the asset don't see a price worth entering the market for. The gold trade is quite dominated by GLD right now.

    I'm not making a bullish case for gold, but I am saying that you shouldn't read too much into a small (volume wise) and illiquid market. The headlines for gold are mixed, making a claim of a "contrarian" play simply a rationalization for a gamble. If you have other fundamental or technical reasons to be bearish on gold, that's fine, but let those be the justification for your trade. Here, I'll give you some reasons:

    Bearish: Dollar has been declining for a while under the perception that other currencies would be shielded from the US decline. Decoupling was fantasy, the whole world is going to hell, so on a relative basis, the dollar is going to rise. Also, those invested in gold were over-leveraged, and the de-leveraging process is going to sink gold further.

    Bullish: All currencies are going to hell, so even if the dollar outperforms relative to other fiat currencies, its purchasing power relative to commodities is going to be weaker (after the painful de-leveraging runs its course). Commodities are in a long secular bull market, and this is only a pothole in the road up. Furthermore, gold can be treated as a currency that can't be weakened by fiat.

    Personally, I think that demand for gold will increase. The supply side of gold is well understood (close enough to constant).
    Reply
  •  
    Aug 22 03:27 PM
    If there was a sudden outflow, it would be hard for the fund's managers to actually move that much bullion on the spot market. I'm not sure how it would work if put under extreme pressure. I suppose they, or one of numerous actors authorized to create and destroy share units, could take ownership of the gold and simultaneously hedge it by selling futures, then take their time selling off the physical while closing out the short futures contracts (or simply delivering against those contracts).
    Reply
  •  
    Aug 22 04:04 PM
    DougM: Yes, that is precisely what happens. But as my recent SA article regarding SLV's share split tries to explain, it is always easier to do it in smaller batches.
    Reply
  •  
    Aug 22 04:24 PM
    If your local bakery runs out of bagels one morning, it doesn't mean there's a world shortage in wheat. With gold, there is a long lag between the time it is mined and the time it is minted. Supply chain hiccups can cause temporary shortages at each of the process stages.

    It costs less than $200 per once to mine and smelt the metal, and producers can supply as much as the world can buy and then some, but not by tomorrow, hence the price fluctuations.

    There is no discrepancy between gold and the GLD ETF. Any investor can buy 100,000 shares of GLD, take them plus a $2000 fee to the offices of World Gold Trust Services, LLC, and redeem them for 10,000 oz of gold bullion, delivered to a registered facility of your choice (there are a few of those in New York). Check the prospectus to see the procedure. This is why GLD always trades within 2% from the price of the spot price of the metal.
    Reply
  •  
    Aug 22 05:50 PM
    Indeed, there is no discrepancy between GLD and the FUTURES PRICE. However, there is a discrepancy between the above and the PRICE of PHYSICAL GOLD.
    Did you try to reedeem 100,000 shares of GLD at the offices of WGTS? I bet they would not answer the door.
    Reply
  •  
    Aug 22 06:18 PM
    All this discussion just re-emphasizes the need to have a plan and to stick to it. My target allocation for gold (and I choose to use GLD as a proxy) is 3-7% of my portfolio. If I fall below the 3% level I add to my position. If I rise above 7% I sell some and re-allocate to wherever I'm short.

    Who the hell really knows where gold, or any other market segment is going? Your best bet is to diversify like crazy, allocate to multiple asset classes, monitor your mix and re-balance when you get out of target range. Other than that, all of this stuff above, and most of the stuff on this site is just a lot of (entertaining) hot air.
    Reply
  •  
    Aug 22 06:21 PM
    Gold crossed its 50% retracement (Jun 06 - Mar 08) last week at $780-ish. The CORRECTION phase is over and the CONSOLIDTION phase begins. Now an Elliot Wave pattern will play over the next year's time period, with POG eventually converging with the 50, 100 and 200 dma's around 950-ish. Then g-g-g-g-g-g-giddy up with a SPIKE and RALLY on up to $1450-ish.
    Reply
  •  
    Aug 22 06:31 PM
    Fair enough, User 171367. My target allocation for gold and silver is 10% each. II plan to sell when DOW/GOLD ratio is below 3.
    Reply
  •  
    Aug 23 12:17 AM
    Has anyone looked into buying coins and bars when premiums are low (i.e., when prices are high) and then buying DZZ to hedge out the underlying? It would have made a lot of sense to buy when you could get eagles for spot + 3.5%. You'd be long the premium with no exposure to gold, but you'd have physical possession which is what you really want anyway. Then at 800 you sell your DZZ. Of course unlike gold DZZ can easily go to zero so you actually win on both sides. Something to think about when the right opportunity comes along.
    Reply
  •  
    Aug 23 09:40 AM
    Those looking for a source to buy Gold & Bullion coins - check out
    kitco.com

    Some of the comments are off the mark!
    Reply
  •  
    Aug 23 10:10 AM
    "It is not proven, but certainly plausible that those investing in physical gold are the ones living in the 'really' real world, and posters like the one who posted this simple minded claptrap are among the deluded."

    - Exactly. Gold has been money for thousands of years. Paper has been money for 37 years. Not to mention this is not the first time paper has attempted to replace gold as money, and each time before failed miserably. The poster is deluded by 4 decades of "common" thought and has not taken the time to read his history. When the world heads back to gold and the paper reverts back to ink and paper, he probably still won't get it.
    Reply
  •  
    Aug 23 10:23 AM
    "If your local bakery runs out of bagels one morning, it doesn't mean there's a world shortage in wheat. With gold, there is a long lag between the time it is mined and the time it is minted. Supply chain hiccups can cause temporary shortages at each of the process stages."

    - Faulty reasoning in regards to a monetary metal. Nearly all the gold ever mined is still out there, it has not been consumed as bagels are. Supply is nearly "infinite" and there is no shortage. What is happening is gold owners are increasing switching out FRNs for gold and hoarding the gold. Never to sell it back into the marketplace. The dollar value for gold is too low, these hoarders have no reason to take their uneaten bagel back to the bakery to be sold to someone else.

    Shortages in monetary metals happening all the time in countries moving towards a worthless currency. They are a warning sign that eventually, even if you have a mountain of currency, you will not be able to exchange that currency for a monetary metal because the holders of the metal do not want the currency.
    Reply
  •  
    Aug 23 10:53 AM
    I love the rich man's tactics mentioned above. "Diversify!"... While a good practice you still have to do it considering the actual macroeconomic picture.

    If you're diversifying but only putting a very small portion into inflation protection assets, then your money's real buying power will be evaporating fast in a high inflation environment. Gold has to be a larger component than 7% of your portfolio if you think inflation is a threat. Your nice 200% return on your small gold investment could be wiped out and then some in a high-inflation environment by your losses in stocks/bonds as their nominal returns are negative or even ok but fail to keep pace with inflation.

    Merely diversifying and playing rope a dope is a rich man's tactic. Minimize the losses is the best to hope for. Fine if you have $10M in the bank. But even then I happen to think that US stocks and bonds are far riskier in the medium term than gold, oil, or any commodity.

    Many investors are still stuck on the "business as usual" mentality, and that this is merely a hiccup in our economic future.

    Tens of trillions of dollars in unfunded liabilities from our federal government say you're wrong. 2009 may see our first $1 Trillion deficit. The deflation caused by some loans going bad is outweighed by the money creation done just to pay the government's bills.



    Reply
  •  
    Aug 23 10:57 AM
    I have seen a lot of talk here and on other articles about the "price of gold" and it is generating a bit of confusion. While they are not all the same, they are all related:

    1) Spot Price. This is the over the counter (OTC) price for wholesale 400oz bars for immediate delivery (actually market works on 2 day settlement) usually ex-London. This is the "real" physical price. There is no shortage in this market.

    2) Futures Price (ie COMEX). This is the price for delivery in the future (ie whenever the next contract is). It will equal the spot price +/- cost of borrowing cash/gold. Americans love to quote this price like it is "the" price of physical gold. It is not, get over yourselves.

    3) GLD Price. This is a proxy for the spot price, because it is based on physical. Because any significant dealer can deliver physical (or take delivery) in exchange for shares (or deliver shares) its price will never significantly diverge from the Spot Price because that would mean dealers are letting arbitrage profits fly way and if you think that dealers are going to forego easy profit you are an idiot.

    4) Coin/Bar Prices. The price for small, non-wholesale amounts of physical gold. This is a physical price of sorts, but it is not the spot price and can diverge from it if manufacturers don't forecast demand correctly and run out of or get too much inventory. Until the manufacturers can get metal from the spot market and convert it into small forms, the price will diverge. This market is small compared to the Spot market. Shortages do not have a bit impact on the spot price (ie real physical market) because the wholesale market is much larger.

    Do not fall into the trap of getting excited by what you see happening in the retail physical market or GLD or COMEX. As I show i goldchat.blogspot.com/... this is about 2% of the entire gold market. What you see is a tiny part.
    Reply
  •  
    Aug 23 11:29 AM
    HeliBen,

    "Nearly all the gold ever mined is still out there, it has not been consumed as bagels are." - Fair point, my analogy was deficient. However, we both agree that there is no real shortage in gold, contrary to what the original author suggests.

    A move in price from $400 to $800 an ounce, be it for the spot, the futures, or the ETF, is much more meaningful than a temporary local shortage at jewelers or even at the US Mint. Gold is indeed a monetary commodity, and a price doubling in three years should get our attention as much as a similar movement in the exchange rate between two major currencies.
    Reply
  •  
    Aug 23 12:50 PM
    1. ALL fiat currencies in ALL of history have failed.
    2. The dollar and the rest of the world's fiat is failing right now.
    3. Silver and Gold rise when fiat falls.
    4. Silver will rise by at least 40X when fiat falls. See History.
    5. Silver is private non-digital money and is sold for cash.
    6. It is time to allocate 95% of your portfolio to Silver.
    Reply
  •  
    Aug 23 01:06 PM
    While the ETF's GLD and SLV (for silver) should always trade close to the spot price due to arbitrage of the authorised participants, there is another factor to consider. That is that the metal backing each share is less than the "official" stated figure due to short selling. Short selling (regardless of whether the shares are borrowed or sold naked) increases the effective float without a corresponding increase in the backing metal.

    SLV has already appeared on the Reg SHO list on a couple of occasions indicating without a doubt that there were sellers of the stock who were unable (or unwilling) to borrow stock and this resulted in a failure to deliver stock. There is no way that a share sold short to a long shareholder or bought by an authorised participant for redemption can be distinguished from a share backed by real metal. Even if there was no naked short sales and no duplicate borrowing of stock, a situation where each real backed share was sold to two long shareholders could exist and the entire float could be redeemed for metal leaving the equal number of shares in the market no longer backed by a single ounce of metal and supported only by the credit of the short seller.