Readers who have followed my work for several years know that I have been quite vocal about the illegitimacy of the GLD gold ETF. James Turk was the first analyst in 2004 to bring attention to flagrant legal loopholes which enable the GLD custodian (HSBC) to play the “shell game” with GLD’s gold bars.
Certainly highly illegal activities by HSBC are de rigueur, as evidenced by its conviction for laundering drug money – for which a $1.9 billion settlement with the Justice Department failed to deter HSBC’s money laundering activities – LINK. What the heck, $1.9 billion is merely the cost of conducting a high-margin business endeavor. Just ask the big banks funding Hillary Clinton’s Presidential campaign.
In 2009 I published an extension of Turk’s 2004 GLD evisceration – one which Turk actually helped me edit – in which I concluded:
I have no problem with the concept of using GLD for daytrading to make directional bets, long or short, on the short term swings in the price of gold. But if you invest in GLD with the intent of making a long term investment in gold, please be aware that GLD is NOT an investment in actual physical gold. GLD is nothing more than a piece of paper which proclaims, but does not promise, to have gold on the other side of its highly structured legal barriers. Furthermore, for the reasons shown above, there is the possibility that you might wake up one day to find out that the price of GLD has suddenly dropped well below the spot price of gold and that GLD could even end up worthless.
At some point I will update this research piece because GLD has made some changes to the prospectus which widened the legal loopholes into legal sewage holes.
The bottom line is that GLD (and SLV) was created to “trap” billions of institutional cash that might otherwise have been used to purchase actual physical bars. It was a tool to enhance the price manipulation of gold using paper derivatives. I have no doubt that at some point in time GLD held a lot gold bars in its vault. But I think it’s also pretty clear to anyone who has been through the prospectus with fine-tooth comb that GLD was set up as a “holding pen” of sorts for gold bars that would eventually be used to put out physical demand fires once the Central Banks ran low on or out of gold bars used in Central Bank leasing activities.
I mentioned to a colleague yesterday that the information about the economy and the markets published by “official” sources is not interesting. The Government and big banks report the information they want us to see. It’s the information content “behind” the official reports that is of interest.
Unfortunately we end up having to connect a lot of “dotted lines” in order to draw reasonable inferences about the truth that lies beneath the surface. With GLD, the prospectus itself is a treasure trove of “dotted lines.” So too is the fact that the Bank of England is now a vault “sub”- custodian for GLD. Yes, the Bank of England that is one of the original participants in the development of the gold leasing market. My GLD research piece explains why the “sub-custodian” mechanism in the GLD legal structure readily enables gold bar leasing.
Adding to the intrigue is the fact that GLD’s “Sponsor,” World Gold Trust Services – a subsidiary of the World Gold Council – has had four different CEO’s in less than three years from 2013-2016. The CEO previous to these three CEOs had been in place for four years, from 2009-2013. BullionStar’s Ronan Manly is the first to report this strange event – LINK.
While I laud Manly for his diligent research of the events, I find his rationale for the CEO revolving door at GLD to be circumspect. For me the dotted lines connecting the CEO revolving door at GLD are threefold – all of which point to the accelerated use of GLD as a source for leasing and hypothecating gold bars since 2012 in order to manipulate the price of gold: 1) the 2012 alteration of the prospectus which further loosened the already tenuous degree of legal accountability of the custodial vaults; 2) the massive draw-down and subsequent “replenishment” of gold bars reported to be in held by the ETF; 3) the inclusion of the Bank of England as one of the highly unaccountable vault sub-custodians.
My “dotted line” view is that each CEO was in the position long enough to understand the true nature of GLD’s dealings and decided they were not getting paid enough to hang around long enough to go down with the ship.
The final conclusion for me is that GLD (and SLV) is the precious metals market’s equivalent of Enron or MF Global. The 3-yr CEO revolving door at GLD since 2012 likely reinforces this viewpoint. When the real scramble for physical gold that can be possessed immediately takes place – an eventuality we all know is coming sooner or later – the truth about GLD will be revealed and the clueless, hope-strangled GLD shareholders will be helpless as they watch the value of GLD plummet while the market price of gold goes parabolic.
Right on! I kept reading, waiting for him to come to your explanation. Skipped down to the conclusion, saved time and realized he doesn’t get it.
Well stated, better than any professional auditor could. Amen!
Here is the problem I have, if the sheet really does hit the fan. What is gold going to do for you? The US economy would break down, every country would be in trouble. What is your gold going to buy you? You think the local market is going to let you buy eggs and milk with it?
It seems to me the barter system would come into play, I would rather have guns and ammo.
Ken – I think gold will come into play later on, not in the early running after a collapse. Better to have junk silver for barter, backed up by your Pb and guns as you return home from the market. Fishermen, hunters, and farmers will establish a trade for silver as things come back on line. Labor can be had for silver.
Gold is wealth storage. You can bring it out later when things have settled down. People who have nothing to trade might have land, truck, car, tractor, equipment, etc. that they will trade for gold. At the right moment, gold is the ticket for large asset purchases.
Got to think long term. If you have worthy kids, they may be the ones to benefit from your gold if society takes a long time to reconstitute itself.
So how much guns and ammo do you need??
When you have gotten all you need then if there is fiat left over what are you going to exchange it for that has a chance of withstanding an economic depression?
Anyone who thinks “hey I’ll stockpile guns and ammo” past a reasonable amount: Are you going to sell/barter them to people who will come back and rob you with them?
The writer of this column and most who post hear agree with your right to arm yourself for sport shooting, legal hunting, and personal protection. That is a given.
This website/blog takes therefore doesn’t discuss that.
Your analysis of quickly changing CEO’s is great! This reminds me of the pickpockets who quickly pass stolen objects to their “assistants” to cover the theft.
In fact the legitimazing process of the GLD gold ETF may easily be done by a trick by “turning future contracts into option contracts”, which also had been quite succesful in the Dutch “Tulip mania” (1636). This is a very cheap method and “completely legal”. This method is the core idea of “legal” fiat money and Wall Street’s business, in which each collateral may be “virtualized”.
In Wikipedia “Tulip mania” (1636) it is described as follows:
“On February 24, 1637, the self-regulating guild of Dutch florists, in a decision that was later ratified by the Dutch Parliament, announced that all futures contracts written after November 30, 1636 and before the re-opening of the cash market in the early Spring, were to be interpreted as option contracts. They did this by simply relieving the futures buyers of the obligation to buy the future tulips, forcing them merely to compensate the sellers with a small fixed percentage of the contract price.”
Whole system and people running it are simply crooks.
I am waiting for the results of European stress test of banks.
Maybe we going to see another miracle. We not going to see the truth at all.
Lies and more lies.
Judgment day for gold.
Is it just it just me or are dealers getting a little nervous every time the prices gets smashed on metal? they don’t seem to be dropping their prices as usual to the spot marker…we don’t want to get caught trying too replace metal above cost now? just saying.
Tisch Says We ‘Live by the Sword’ at Loews as Gold Bet Doubles
Loews investment in mining stocks fuels investment income gain
Gold investments have ‘come to life’ Tisch says on call
Loews Corp., the holding company run by New York’s Tisch family, was able to counter low bond yields and stock market volatility in the first half of this year with gold-related investments that doubled in value.
Second-quarter net investment income at Loews climbed to $56 million from $7 million a year earlier, the company said in a statement Monday.
“You die by the sword, you live by the sword,” Chief Executive Officer Jim Tisch said in a conference call discussing results. “We had, for a number of quarters, even years, suffered with gold investments. What’s happened in this most recent quarter is gold investments came to life.”
“I am not, nor is anybody else here at Loews what you would call a ‘gold bug,”’ Tisch said, using a phrase for investors who are most optimistic about the metal’s prospects. “But it is interesting to me that in the first half of this year, with a relatively modest investment in gold securities, we’ve been able to earn an outsized rate of return.”
going to need more than that to save the balance sheets
Wouldn’t it be fun if all corporations started investing in gold to boost their profits? like Loew’s?
It took me about 2 minutes of reading to see the paper scam when it first came out. The massive funding by the blind has been just amazing. I guess it is easy to fool most of the people some of the time.