Sunday, December 13, 2009

Adam Hamilton's Sloppy, Inept Commentary On GLD

I was somewhat shocked to read  Adam Hamilton's freebie essay posted on in which he tries to discredit the growing chorus of analysts who are taking a close look at GLD's Prospectus and throwing up a big red flag on the GLD operations.  It is readily apparent that Hamilton has not spent time reading the GLD prospectus.  His critcism is of the fringe element out there hurling obviously unfounded accusations.  Hamilton, in an uncanny display of incompetent analyis, completely avoids the obvious legal loopholes - loopholes large enough to drive a freight train through - and he fails to address the real problems with GLD's legal structure.  If you're interested, please review my 12/2 post on GLD:  LINK

One of the biggest problems with GLD is the lack of any accountability from the Custodian, HSBC, for the location and physical inventory of the actual gold bars.  Hamilton tries to address the issue of the lack of a bona fide audit of GLD by throwing up that he's an ex-auditor ("I eat breakfast every morning 300 yards from 3000 Cubans who are trained to kill me" - Jack Nicholson in "A Few Good Men"), and since GLD links its audit report on its website and he's read that audit report, it's okay.

HOWEVER, if Hamilton had spent time thoroughly reviewing the Prospectus, he would see that a physical audit is not required and that the annual financial audit is nothing more than an inspection of the financial records provided by the Trustee.  As per the Prospectus, there are several ways in which the Custodian can throw roadblocks to an actual, bona fide physical audit. I leave it to the reader to look at my report on GLD and read the Prospectus for themselves.

Hamilton also points to the "Inspectorate Certificate" newly linked on the GLD website.  But this "certificate" is a complete farce.  Again, I admonish Hamilton for sloppy, incompetent work.  The certificate clearly states "As per the records of the Custodian..." LINK.  THE PRIMARY PROBLEM WITH THE VERY LEGAL STRUCTURE OF GLD IS THE WAY IN WHICH THE CUSTODIAN HAS NEARLY ZERO ACCOUNTABILITY.  Do your goddamn homework Adam.  This "inspection of the bullions bars" is nothing more than an inspection of the records - paper records - provided by HSBC.  Anyone see a problem here?  There is still NO bona fide physical audit of the actual bars.  And the legal structure of GLD makes it impossible to force a genuine bar count AND formal assay audit..  We know we need an assay inspection of the bars because of all the "salted" London bullion bars being discovered in depositories across the globe ("salted" = gold plated tungsten).

One more point about Hamilton's defense of the audit firm and audit process of GLD.  I guess he wasn't around when Enron imploded from massive fraud.  I vividly remember Enron because I started shorting it in the $40's and made a lot money when Enron imploded a few months later.  In fact, the Enron Ponzi scheme took down its auditor, the formerly highly regarded Arthur Andersen.  Next time an ex-CPA tries to defend his profession, grab ahold of your wallet and run.  In my GLD report, written 10 months ago, I suggest that GLD has the possibility of being the next Enron.

When I first started exclusively researching/investing/trading the precious metals and mining stock sector eight years ago, I actually subscribed to Hamilton's newsletter for a short period of time.  It didn't take reading too many issues before I understood that Hamilton's research and analysis of mining stocks lacks any real substance and due diligence.  His reports are overly verbose, self-adulating and narcissistic.  They do contain some excellent statistical work in which he meticulously massages empirical trading data in the context of simple technical analysis.  This current commentary on GLD, however, reminds me why I haven't paid attention to his work for over 6 years.


  1. And when I got to the part about how the SEC would have picked up any anomaly I just stopped reading his rubbish; I mean the SEC's got such a great track record. But what of his opinion that GLD is good for gold, is there any validity for that point?

  2. Interesting article. His whole premise is that GLD is fine because nothing has happened to it. Ok. Like you said, Enron was fine until it wasn't also.

  3. It can't be good for gold. It holds the price down since there's no requirement to back GLD shares with physical.

    It's a fractional reserve bank.

  4. Gordon: LOL. I like the part about how the "inspector" wouldn't risk its reputation. Of couse, the inspector is looking just at the Custodian records, so it can pass the buck.

    gyc: I looked at Enron about 4 months before it imploded and decided it was a Ponzi scheme. We never found out just how fraudulent it was until it was in bankruptcy court and the discovery process was started.

    @anonymous: that's exactly what the problem is with GLD. It would take an incredible leap of faith to believe that the Custodian and Trustee are not exploiting the loopholes and leasing the shit out of GLD gold.


    Apparently some children were able to get thru the parental controls on their parents' computers and were leaving obnoxious, malicious and ridiculous comments, some of which included my full name and the mailing address of people in the Denver area with my last name.

    As such, I have had to put the comment moderator control in place. I appreciate any and all relevant comments and will post them in as timely of a manner as possible.

    I am looking into an IP address blocker so I don't have to moderate. Kids will be kids and malicious ones always ruin it for everyone.

    A colleague of mine does not even allow comments on his blog posts and now I know why.

  6. Look, I'm no fan of GLD as they are a competitor of ours, but the certificate you link to clearly indicates that they performed a full COUNT of the bars of gold at the Custodian's PREMISES. They say they did a random sample and weighed bars. This sounds like a physical count to me.

    If they didn't do a physical count then how else do they identify 6 pages of anomalies? If they only did a paper review of HSBC's records then how would they come up with anomalies without checking it against something, ie the actual bars?

  7. Well let's see. How careful could they have been given that the certificate itself has typos in it? Look at the 2nd sentence under "Description of Activity." From the description on page 2, it looks largely like a reconciliation of the records between HSBC and BONY (the Trustee). "Statistically randon sample of the bars counted were weighed and the weight checked against the Custodian's records." The way that reads, I'm not convinced all of the bars were counted and accounted for. What about bars at the many subcustodians? Again, if you read the description of what was done and look at the "corrections" made, it looks largely like an exercise in making sure the records between the Trustee and HSBC correlated. And what about a statistically significant assay of the bars?

    That "certificate" looks like not much more than "window dressing."

  8. By the way, I'm not part of the conspiracy crowd that is saying GLD is a complete fraud. I do firmly believe, however, until proved otherwise, that GLD leases out a large portion of the bars it acquires. The Prospectus is set up specifically for that activity to occur.

    If you want to see an example of gold trust that is going to soon come public, check out the Prospectus for Sprott's PHYS. There's no reason whatsoever that the GLD Prospectus could not have been set up like that. If you compare the differences, you will see a business structure for a physical gold ETF that is transparent and with complete accountability (PHYS) vs. one that has very little transparency and accountability.

    I have been told by an insider that this was one of the reasons Eric Sprott created PHYS - to show the world how an honest gold bullion ETF operates.

  9. Hi Dave,
    You mention that salted bars have surfaced all over the globe. I have only heard of the Hong Kong incident. Could you elaborate on the others, please? I am curious ;-)

    The article that you hinted me to in an earlier post, was that titled "Deja Vu - Central Banks at the abyss" by Reginald H. Howe from 2004? If so I have found it, and it was very interesting indeed.

    Brgds Solar

  10. The Hong Kong bars we know about for sure. If you read Jim Willie's freebie post from two weeks ago, I believe, he has it from good sources that London has the same problem, it's just not being publicized. I usually treat unverified info from Jim Willie as 50/50, but in this case it's one of those issues of "where there's smoke, there's fire." You know, if OJ guilty or not? Kind of like that.

  11. The biggest part of the problem with figuring out what's real and what isn't is that there is very little to no transparency at sovereign depositiories and their custodians. GLD is a perfect example. But what about the gold that the United States Government is supposed to be holding? There has not been a formal, independent audit of that gold since 1953. A lot of the gold is now supposedly being safekept in "deep storage" at West Point. Shouldn't our Government be required to provide an annual physical audit, including random, statistically significant assays?

    There have been countless calls for the U.S. to provide proof of its 8100 tons since the formation of GATA and the Government conveniently ignores these challenges. Shouldn't the U.S. Government be held accountable for this gold as the employee of the U.S. citizens? At the very least it should be held accountable by the signees of Bretton Woods, since a large part of the reason that the dollar was accepted as the basis for the global reserve currency was the fact that the U.S. was the largest owner of gold back then. Nixon closed the gold window because the U.S. did not have enough gold to back the convertibility of its foreign debt obligations, deGaulle was in the process of forcing the conversion of U.S. liabilities to France, and the U.S. didnt' have enough gold to cover a "run" on the U.S. gold holdings. Where is all this gold?

  12. Dave, slightly OT. I currently have about 30% of my portfolio in PMs and PM stocks, and I want to have a diversified portfolio. You've said several times that one should put as much a possible into PMs. Is your entire portfolio allocated that way? If not, what do you reckon as a good PM allocation? And, what would you diversify with, i.e. do you see any other decent investments around? Maybe you could address this in a post.

  13. Hey U6:

    I have pretty much 100% in bullion and mining stocks. I don't believe in diversification. At best, diversification diersifies your investments into mediocrity.

    I believe in taking a view based on careful reseach and analysis and then expressing that view with your investments.

    Right now my view is that the U.S. is politically and economically collapsing, the U.S. dollar is collapsing and the people in charge of implementing monetary and fiscal policy are making things worse. In my view, the best way to take on that view is with precious metals and mining stocks. Think about how far gold has moved so far this decade without the benefit of any significant perceived inflation. What happens when all the money being manuctured by the Fed begins to translate into price inflation. If the market gets even a "whiff" of that, gold/silver will do moonshots.

    There are defintely other ways to make contra-dollar bets. Hard commodity ETFs, contra-dollar currencies - I like the Canadian and Aussie dollars (FXC, FXA). If you have the money for it, and you really want to survive what's coming, you can go around to rural bank liquidation farm auctions and pick up cheap farmland. Oil and oil stocks (I don't follow that sector other than monitoring the price of oil). Food producing stocks like ConAgra.

    I hope that gives you some ideas. I would absolutely avoid all fixed income investments (long rates will eventually spike a lot higher even with the Fed sitting on zero Fed Funds), bank CD's, residential real estate, REITs and money market funds.

  14. Thanks, Dave, I appreciate your input. I agree with your analysis.

  15. BRAVO !!!

    Me too I was shocked and I would like to know how much money does this guy get to write such unbelievable fantasies....

    Have a nice day


  16. Dave,
    seems that there are quite a few angry folks coming here and now onto my blog to complain about gold and the authors personally. I think their time would be better spent doing other things.

  17. Dave, I agree with your comments on the prospectus, I could not believe all the escape clauses when it first came out.

    Anyway, you say that "it looks largely like a reconciliation of the records between HSBC and BONY (the Trustee)". I don't think this is the case because the the Trustee would get its details of the bars from the custodian (HSBC), in which case the records of HSBC and BONY would always agreed.

    For them to be different would mean that BONY got different bar lists, but from whom? BONY does not have physical, it is the custodian that has the physical and gives out the bar details.

    I have done many stocktakes of 400oz and 1000oz bars and to me the corrections made fit with my experience of how errors can creep in regarding the recording of bar numbers - they don't read to me like a paper reconciliation between BONY and HSBC.

    Having said that, I am shocked at the number of errors - there may be 90,000 bars and we could expect number transposition errors and the like, but wrong brand names?

  18. Bron, I see what you are saying but the "certificate of inspection" specifically says "the gold inventory records of Bank of New York Mellon were reconciled to the records of the Custodian." If GLD was operated in the manner in which you just described, it would seem that this step would be unnecessary.

    I don't know if you read Zerohedge, but a few months ago they posted a research piece that was a computer generated analysis of the bar list of SLW and which oncovered way too many instances of duplicated entries and other listing errors and inconsistencies in order for the the mistakes to be random coincidences. You can probably do a search on Zerohedge to dig up the research piece if you're interested.

    As you point out, aside from other problems I have with this "inspection certificate," there are just too many errors that were found for me to take this seriously. And was the bar-count a count of every single bar or just the bars being held by the Custodian plus adding in the paper records of the bars being held by subcustodians?

    The weight-check was random sample. I'd like to see a complete independent audit and statistically significant assay audit performed.

  19. My reading of that is that the first step is to check the records between BONY and HSBC, then do physical count. I think the BONY "inventory records" would just be transaction ounces in/out and resulting net total ounces of BONY compared to the total ounces of the bar list from HSBC. Because BONY would deal in daily ounces issued/redeemed, this first reconciliation step should be done before the count, ie you have to agree a total ounce liability first to then check if there are enough bars against that liability.

    If they are saying they did a count at HSBC, then that implies that there are no subcustodians involved.

    I analysed the Zero Hedge SLV report here and subsequently had email discussions with the author and suggested some alternative lines of enquiry. I understand he is busy with other things and will get on to analysing SLV bar list when he has time.

  20. Fair enought. We'll just have to agree to disagree. I believe this "certificate of inspecation" is a white wash. Too many inconsistencies and incomplete description of methodologies. I happen to be of the view - along with several others before me starting with James Turk who first blew the whistle on GLD's legal structure back in 2004 - that GLD was set up to buy a lot gold and then turnaround and lease it back out. The "IC" does nothing to discredit that view.

    What's even more appalling is that the SEC approved the GLD prospectus given all of the structural problems with it that allow it to fleece investors.

    If you want to see how a bona fide physical gold ETF, with bona fide checks and balances and a bona fide Custodian with bona fide accountability reads, look thru the Sprott PHYS Prospectus:

    If GLD was truly meant to be a true physical-gold-backed ETF with bona fide and verifiable Custodianship and safekeeping, there's absolutely no reason whatsoever that the Sponsor of GLD would not revise and amend its existing legal structure into something that looks like the PHYS prospectus - or at least close the gaping wide loopholes in the existing legal structure.

  21. Dave,

    You misinterpreted my post. I agree with you down the line and read Midas daily. What I meant was that most of the writers in the Gold world do not represent what is really going on. Furthermore, I think the level of media disinfo is right up there with the level of metal manipulation.

    I too am 100% invested in Gold/Silver and the shares and am aware of the ultimate destiny of the USD. And I might add you were spot on about Wilson/Nixon being the two men most responsible for the death of the dollar.

    Hope this clears up any contention.

    Joe M.

  22. Thanks for clarifying that Joe. Actually, after I had thought about yesterday, I was wondering if your comment had been directed at Hamilton.

    I agree there's a lot of nutballs out there, both pro and anti gold. I don't know why Hamilton would defend GLD in a highly visible commentary in which it was obvious he had not even read the GLD Prospectus, but the most of the rediculous, uninformed commentary comes from the anti-gold contingency.

    The best is Nouriel Roubini saying gold "has no intrinsic value." ROFLMAO...I've edited the comment about the cockroaches attacking my site...Dave - see below.

  23. GYC, the malicious comments didn't really start popping up until late last week. I had to draw the line and moderate comments - at least for the time being - as one of posters plastered a couple of addresses in the Denver area of families with my last name. I received a call from one of them this morining asking if I had been receiving a rash of "caller i.d. blocked" hang-ups. So for now, I have to have the moderation filter in place.

    In my view, the more commentators like you and I are targeted by morons like this, the more it reinforces that our views are correct. If these people like Boulderbuddy and CommonSenseGuy don't like my views, why don't they take the time to publish their own views with their own commentary. It's free to set up a blog. I'd be happy to post a debate between the pro and anti gold views. I think it's more likely that people like this are spineless, peanut gallery cockroaches who scatter when the lights switch on. I've invited all three of them to contact me directly via email if they want to conduct an off-blog discussion, and of course that had the effect of turning on the lights. Thankfully this blog software has it's on version of Raid LOL.