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Where do the gold ETFs really get their bullion?
By Jim Sinclair
Thursday, February 12, 2009
Don't you think it is about time GLD and the other popular international gold exchange-traded gold funds told their owners exactly what kind of gold they claim to own?
Can you imagine a situation where a person buys a gold ETF to own "non-gold" but finds out that he in reality owns OTC derivatives on gold? That would be an investment in the same type of financial instrument (not gold) that one owns gold bullion to protect oneself against.
The failure to unearth the Madoff scandal earlier becomes incredible when one understands that the returns from the market that were claimed on the size of the hedge fund were logically impossible.
The same reasoning screams bloody murder when applied to the many gold EFTs in terms of what it is they really own.
This raises a major question: From where did all the gold claimed to be owned by all the gold ETFs come from?
Where did funds such as GLD get their additional 45 tons in the last month?
We certainly can forget about that gold coming from the Comex. Twelve deliveries would stand out like a sore thumb.
Record keeping eliminates all exchanges around the globe as the source of bullion in any size to all the gold ETFs.
The physical market is so tight that coin minting has all but closed down compared to what it was one year ago. It is hard to accept that the gold EFTs can buy what the mints can't.
A read of the original EFT prospectus removes any thought that the gold is leased but leaves one to invite probability.
That probability is that the claimed gold can be only OTC derivative long positions. If that is so, then the financial reliability of the paper stands on the foundation of the balance sheet of the granting counterparty to the OTC derivative. This is true regardless of whether the counterparty is a mine or a naked speculator.
I think people own an ETF of derivatives, not of gold.
If I am correct then there is no clearinghouse guarantee for the OTC derivative to function.
Like so many other surprises of the last two years, the gold ETF shareholder may actually have no gold at all.
A perfect Ponzi scheme would allow you to surrender shares for bullion. You need only think about it.
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