Tuesday, December 1, 2009

Is The Comex The Next Madoff Disaster?

Byline:  Has fund manager John Paulson brought a butter knife to an automatic weapon fight?

To start, wouldn't it be ironic if now-famous hedge fund manager John Paulson, who made billions betting against the real estate using derivatives, gave most of those profits back if I'm right about GLD and GLD implodes like Enron?  Judging from Paulson's investment activity in the gold market, he has entered his "horse" into a lucrative race, only his horse is crippled.  His stock picks are pathetic and his choice of using GLD as a proxy for physical gold speaks volumns about his lack of understanding of the precious metals market.  I will circle back around to this after I address the accelerating train wreck at the Comex.

My colleague "Jesse" of Jesse's Cafe Americain has posted a must-read piece about how the Comex now permits gold/silver contracts to be settled using ETF's, like GLD, IAU and SLV.  Those of us who have been watching the Comex for many years have wondered with bewilderment, albeit horrified amazement, as the Comex and its regulators have allowed the short positions controlled by the big banks like JPM and Goldman to build up way beyond the ability of the Comex to settle those contracts with gold and silver, should there come a time when those holding those contracts from the long side decide to stand for actual delivery. This is the definition of a Ponzi scheme.  Keep issuing paper claims and hoping that those claims either expire worthless or enough of the holders do not ask for actual settlement, which has been the case all along.  But what if....?

It has long been suspected that the reported inventory at the Comex is being fraudulently reported such that the Comex would be in trouble even if a portion of the contract longs were to stand for delivery.  Recently, there has been some unexplained inventory occurrences which lend credence to the fraud theory.  More recently, the Comex issued a regulatory change which would permit ETFs to be delivered to contract longs instead of the actual metal.   This quote from Jesse's commentary sums up the situation nicely:

 "Comex is putting forward the offer of paper in the form of money or ETF positions very aggressively, and making it the much easier alternative. Delivery of physical gold from the Comex is no longer as straightforward or even as semi-convenient as it had been in the past. In fact, it is difficult, and one must be very persistent and wait long periods of time" Here is the link:  Exchange For Physical

I can attest from personal experience that the Comex has indeed made it very burdensome to stand for physical delivery.  We waited 7 weeks past "last delivery day" to receive delivery on one measely silver contract.  The person who manages our depository told us were lucky, that he has other clients waiting over 2 months for delivery.

The point here is, why would the Comex be doing this if they were not concerned about a "run on the bank" in which traders stand for delivery of more gold/silver than the Comex is able to produce?  The point of acquiring gold/silver on the Comex is that it enables the buyer to acquire a large quantity of gold/silver which meets specific size, weight and quality specifications at the spot price.  Why now offer paper instead?

My point here is that it is becoming more apparent on a daily basis that the Comex is yet another one of the many large Ponzi schemes operating in the United States financial system, some already busted and some yet to bust - many operating with the enablement of the U.S. Government.  It would seem that a bright light is now illuminating a reality that was once criticized as being pure conspiracy theory.

My next issue is with the idea of settling a Comex position with GLD.  I wrote a research piece last year, and several others have as well, based on a very close reading of the GLD prospectus, in which the validity of GLD's actual physical gold holdings were questioned.  Without going into details, and at some point I'll post my work, there is no possible way to force the Trustee, Sponsor and Custodian of GLD to verify and prove that they actually possess the gold they say they do.  In fact, GLD has been so openly criticized, and has so blatantly rejected calls to provide the market with an independent physical audit of its gold, that GLD's Sponsor, the World Gold Council, and its Trustee, Bank of New York, should feel thoroughly embarrassed.  The same SEC that let Madoff off the hook for several years is the entity which blessed the GLD prospectus, to the utter horrification of those who understood how exposed to fraud GLD investors would be.

As you can see, the fact that Comex would allow contracts to be settled using GLD in lieu of physical gold is absurd.  Essentially, when you get long a Comex contract thinking you are buying into the ability to take delivery of a 100 oz. ounce bar of gold, you are in reality buying into a piece of paper which in all probability is not backed by that bar of gold.  Then, when the Comex asks you to take delivery of the equivalent amount of GLD, you are getting whacked with another piece of paper, which not only is most likely not backed by gold, but you need 100,000 shares of it in order to convert into gold (GLD gold is only redeemable in 100,000 share increments, roughly $11.7 million in GLD stock at today's price).

Which brings me back to John Paulson, who made a big splash by announcing his new gold fund, in which he's investing $250 million of his own money.  Paulson's firm is the largest holder of GLD.  Ever since Paulson made his fortune shorting the housing/mortgage market, his investment ideas have been questionable (BAC, C, CGB).  His big mining stock positions are AU and KGC.  AU is currently sitting on an over 4 million ounce hedge position in gold.  If you look at its latest 10Q, the close to $600 million dollar loss it posted last quarter can be tied to this hedge - AU lost almost $600 million during a period of time when the price of gold was relentlessly going higher and its peers were recording huge profits.  This hedge will be very hard to close out without losing multiples of last quarter's loss.  Paulson's fund owns at least 12% of AU.  KGC has its own issues which make it an inferior large-cap gold mining stock investment.

Experienced gold market investors understand that the only true way to benefit from the attributes of investing in gold is to actually accumulate physical gold and silver and make sure it is held in your own custody or with a safekeeping custodian that is trustworthy.   GLD's custodian, HSBC, is not only NOT trustworthy but is one of the larger gold leasing entities in the market.  GLD is okay to use as a means of indexing the rate of return on gold, but GLD is definitively not an investment in the actual metal.  Someone please ask David Einhorn of Greenlight Capital, and formerly the largest GLD shareholder, why he suddenly announced in July that he dumped his GLD shares and bought physical gold that his firm safekeeps.  Apparently Paulson is arrogant enough to not look into this matter.

Here's the risk with GLD:  the instant that a very large investor attempts to convert his GLD shares into GLD gold, and GLD delays or defaults on this attempt, the price of GLD will plummet.  In other words, if myself and several others are correct about the true nature of GLD, it most likely leases out its physical gold holdings and uses derivatives with funds not used to buy actual gold - GLD could potentially collapse the same way as did Enron and Madoff.  Paulson's massive investment in GLD would vaporize, the price of gold would do a moonshot and everyone holding and investing in the physical metal would have a good laugh.

And finally, to come full circle, an argument can be made that the Comex has turned into just another massive paper Ponzi scheme.  To make matters worse the CFTC, as regulator of the Comex, appears to be looking the other way while a few big banks violate position and trading rules in gold and silver that the CFTC strictly enforces in other commodities markets.  With all signs pointing toward the Ponzi scheme view of the Comex, and in the absence of the Comex itself or its regulator providing any explanations to the contrary, it would appear that the Comex could be headed for the same graveyard as Enron, Refco, Madoff, et. al.  And anyone considering investing large sums of money into GLD or with John Paulson's new gold fund should make sure they engage in very thorough due diligence - the kind of due diligence that many of us have been doing over the 9 year duration of the precious metals bull market.


  1. Jesus Christ Dave your losing it. Its nice to know that you would have a nice laugh if GLD did vaporize and millions of people that bought the fund lost all their money. I like Real Gold and mining stocks and yes I own some GLD. its easy to trade for me where physical is not. But your commentary here is what gives Gold Enthusiasts a bad name. Your always looking for some stupid Comex default or preaching that GLD is rigged. Jeez man, preach the sound fundamentals of why to invest in physical gold and stop sounding like such a nutjob.

  2. Dave,
    I do not think you are nuts!

    The idea that GLD could blow up while real gold prices go higher is a point not well known amongst the newer gold buyers. GLD is a trading platform, not a long term invetsment in my opinion.

    Saints were at least nice enough to sit at 38 points instead of scoring 48 0r 68 for that matter. Classy guys.

  3. the only thing is that paulson has proven right for the last 15 years and you still writing blogs

  4. Hi boogiespence,

    Sorry to hear you think an open and honest discussion = "sounding like such a nutjob."


    Thanks for for taking the time to share your thoughts and knowledge. You efforts are appreciated!

  5. Agree on GLD. It is crap.

    Not only that, but you have to be stupid to have either GLD or SLV on a long-term basis.

    Assuming that they have the gold or silver, the funds have expenses to pay. To meet the expenses, they have to sell some of the metal. So, your share of the underlying assets shrink over time. After thinkng that through, that ended my involvement with either of them.

  6. JR, I love open and honest forums of discussion. I read this Blog all the time as well as other Gold Blogs that dwelve into the Conspiracy's. What I don't like is the commentary of sitting back and laughing if Gld imploded. A lot of people that don't know anything about physical or conspiracy's at Comex or GLD invest their hard earn money in this investment becuase they believe like you and I do that Gold is a store of wealth and will help us preserve our purchasing power down the road. When Dave paints a picture that everyone who owns physical will be laughing their asses off if and when Comex/Gld implode is disturbing. Gold Bugs get bad raps because a lot of people think that Being long gold is being short America or hoping for some Armageddon play out so we finally make money. We do not need that stigma attached to us to have fun and make money with precious metals.

  7. Just listen to Bob Moriarty that presient gold forecaster of that now famous piece of 30 Nov 3009 Last Week was a Top in Gold.

    The government thinks it's their job to manipulate currencies, interest rates and probably the stock market as well. Why wouldn't they manipulate gold and silver as well?

    Don't listen to the pro's on the COMEX, take your advice from the F**k Bunnies on Fool TV (FTV).

  8. Boogie,
    I get what you are saying, I think it important to cover this story though as plenty of recent buyers of GLD that I know have no idea about the shortcomings.

    Is your nickname from "Boogie Nights" or the classic "Breakin 2; Electric Boogalaoo"?

  9. Dave, have you seen this?


  10. @boogie: it's not about taking pleasure in others' pain. it's about trying to educate people and if and when GLD blows up, and it will eventually, i'm not the only who's done the work and analysis who's concluded that GLD is a fraud, it's about educating people about fact vs. fiction. if they don't want to listen, that's their problem. foretold is forwarned.

    as for Paulson, he's an arrogant bastard who made a fortune on one giant bet and now he thinks he's a master of the universe. he is going to get burned on GLD.

    i'll post my research on GLD when I get around to learning how to use the software that allows a blogger to post PDF files. my piece was posted at www.lemetropolecafe.com back in late February, so anyone can use their email address and get 2 week free trial and access my piece that way.

    But don't take it from me, here's another analyst's take on it. this was report issued by a newsletter called The Gold and Energy Advisor:
    (will post this over several comment spots because of character limits in the comment box):

  11. The gold market was rocked recently by a surprise announcement. The Greenlight Capital hedge fund—the largest shareholder of GLD—just dumped all its shares. More than 4.2 million of them, in fact.
    Where did all this money go? Straight into physical gold. And rumors are swirling that at least seven other hedge funds are following suit. What’s going on? Why would they sell GLD and buy physical gold? Aren’t shares in GLD exactly the same as physical metal? All the financial media say they are. In fact, the media have been shills for GLD since before it was launched. But GLD is a sucker’s game. I’ve gone on record predicting that GLD shareholders are going to be burned big-time when gold takes off. Looks like a few hedge fund managers are (finally) realizing this too. I discussed gold funds in GEA early last year, focusing mostly on GLD (since it’s by far the biggest fund). Today let’s talk about the most egregious aspect of the fund: its legal structure. As you read the following information, ask yourself: is this set up to be a legitimate investment? Or is it set up to be…The Biggest Scam Since
    Bernie Madoff? The concept behind GLD is supposed to be simple. When you buy shares in the fund, its managers use your money to buy gold, and store it for you. The concept is simple. But the reality is a lot more complicated. If you look at GLD’s structure, you’ll see that the Trustee (from which you buy shares) doesn’t keep your gold. It contracts storage out to a Custodian. But the Trustee has only a limited right to audit the Custodian, to make sure your gold is being kept safely. That’s bad enough. But the Custodian, in turn, can give your gold to someone else: a “sub-custodian.” If that happens, the Trustee has no right to monitor the subcustodian at all!

    Sound crazy? See for yourself. The Fund’s SEC registration is available at http://www.sec.gov/Archives/edgar/data/1222333/000095013604003776/file001.htm. I’ll quote directly from it. (Note that GLD was originally named streetTRACKS, which is the name on these documents.) This is from page 37:

  12. “The ability of the Trustee to monitor the performance of the Custodian may be limited because
    under the Custody Agreements the Trustee may, only up to twice a year, visit the premises of the
    Custodian for the purpose of examining the Trust’s gold and certain related records…In addition, the
    Trustee has no right to visit the premises of any subcustodian for the purposes of examining the
    Trust’s gold…and no subcustodian is obligated to cooperate in any review the Trustee may wish
    to conduct of the facilities, procedures, records or creditworthiness of such subcustodian.”
    The subcustodians can also give your gold to other people, who can give it to other people, who
    can give it to other people…etc. But none of them even have to agree to keep your gold safe! As it
    says on page 44: “The Custodian does not have written custody agreements with the subcustodians it selects. The Custodian’s selected subcustodians may appoint further subcustodians. These further subcustodians are not expected to have written custody agreements with the Custodian’s sub-custodians
    that selected them. The lack of such written contracts could affect the recourse of the Trust and
    the Custodian against any sub-custodians in the event a subcustodian does not use due care in the
    safekeeping of the Trust’s gold.” But surely, the Custodian must at least try to choose trustworthy people? No! The Custodian isn’t even obligated to get your gold back if some sub-sub-subcustodian steals it! “The Custodian is not responsible for their selection
    of further subcustodians… The Custodian is not responsible for the actions or inactions of subcustodians…The Custodian may not have the right to, and does not have the obligation to, seek recovery of the gold from any subcustodians appointed by a subcustodian.”
    Well, if the worst happens, at least your investment is insured, right? Wrong! Page 45:
    “The Custodian and the Trustee will not require any direct or indirect subcustodians to be insured
    or bonded with respect to their custodial activities…Shareholders cannot be assured that the
    Custodian will maintain adequate insurance with respect to the gold held by the Custodian on behalf
    of the Trust.” Here’s What It All Means Imagine that you bought some gold from your
    local coin and bullion dealer. Would you then turn it over to a “custodian” who said that:
    • He probably wouldn’t store your gold himself.
    • Instead, he would turn it over to someone else, without bothering to check on this person’s criminal record. He also wouldn’t be responsible to you for whatever that person did with your gold.
    • In addition, that second person could give your gold to someone else, who could pass it on to
    another person, etc.
    • You would have no right to verify that your gold hadn’t been stolen by somebody during this daisy chain of custody.
    • Nor would anybody in this chain be responsible to you if your gold was stolen. If you lost your
    gold, nobody—not even the original custodian you gave it to—would have to help you recover it, or even figure out what happened to it.

  13. Would you turn your gold over to someone like this? No? Then don’t buy shares in GLD, because that’s exactly what you would be doing. What is GLD’s True Purpose? Why do you suppose GLD’s founders gave themselves the right to lose all their shareholders’ gold, with absolutely no accountability? Does that sound like an ‘honest’ way to run a precious-metals fund? Or is there a more sinister motive?

    Sooner or later, though, the metal’s price breaks out of its range and shoots up. (And in recent issues
    of GEA, I’ve documented a long list of reasons I think gold prices are ready to explode soon.)
    Once the price shoots up, gold lessees (those who borrowed gold) go upside-down on their loans. The
    gold they owe suddenly costs a lot more, and they can’t buy enough of it to repay their loans. When
    they default, the lessors (those who lent gold) start defaulting on their commitments to their depositors
    (gold owners)… and the depositors panic and start the precious-metal equivalent of a bank run…and that’s when the leasing market implodes. This cycle has happened over and over again. That’s why…

    Gold Leasing Schemes Always Collapse Eventually In 1989, the central bank of Portugal lent 17
    metric tons of gold to Drexel Burnham Lambert. Just a few days later, Drexel went bankrupt. The
    citizens of Portugal lost all that gold. In 1984, Johnson Matthey Bankers was as “blue chip” as an institution can be. Johnson Matthey was founded in 1817, and the bank was one of the five “fixing” members of the London gold market. It held a large percentage of the world’s gold. Despite being one of the largest gold banks in the world, it suddenly collapsed anyway, leaving its account holders in a very ugly situation. The government had to nationalize the bank to clean up the mess.

    In early 2000, Handy & Harman Refiners imploded. It too was one of the largest precious metals companies in the world—until the day in March 2000 when it suddenly went bankrupt. Customers
    who had thought they owned silver and gold suddenly discovered they owned nothing at all.

    The lesson is clear. One of gold’s many benefits is its immunity to financial and political crises.
    Indeed, gold usually flourishes during these situations. But owning your gold through another party
    like this might expose you to the exact same problems you’re trying to avoid! While you should be
    profiting handsomely, you suddenly find yourself as unsecured creditor to a bankrupt trustee instead.
    And in the case of GLD, thanks to the weasel language buried deep in its prospectus, you would
    have no recourse at all against the fund. After all, the Trustee “does not have the obligation to seek

  14. I think GLD was set up to do two things:

    1. Make gargantuan profits from the gold leasing
    trade, and…
    2. Make others pay for it.
    The gold market has a huge sector that few know about: gold leasing. Gold leasing can be done for a variety of reasons, but here’s a common example. A jewelry manufacturer wants to create and market a new line of jewelry, but doesn’t have the money to do so. Rather than pay high interest rates to a bank, it just leases gold from a large gold holder. The manufacturer uses some of the gold to make its jewelry, and sells the rest to raise money for marketing and other expenses. Once the new jewelry is made and sold, the manufacturer buys gold on the open market to pay back its lease, including some extra metal as interest. Gold leasing is a very lucrative industry. However, it’s very difficult to get started. You need a tremendous amount of money to buy your ‘inventory’. That’s why the industry is dominated by just
    a handful of mega-banks like UBS and JP Morgan Chase. But imagine what you could do if you could get the market itself to buy your inventory for you. Imagine how much money you could make if you
    noticed the growing popularity of ETFs (exchange traded funds), and set one up to buy gold. If you did
    a good job marketing it, you could convince hundreds of thousands of people to buy gold with their
    money and allow you to “store” it for them. Now you have a vault brimming with millions
    of ounces of gold. And you didn’t pay a dime for any of it. The best part of all is that…None of the suckers— I mean, investors— have the right to ever inspect the vault and make sure all the gold is there, or that any of it even exists.

    How much money could you make lending out that gold over and over again? There’s just one problem though. Gold leasing schemes work fine—and generate huge profits for their managers—only as long as gold prices stay flat or go down. If this is true, it will explode in the face of those investors who “own” it when gold’s price really takes off. When leasing schemes collapse, they always
    drive gold prices to the moon. People who own the commodity (physical gold owners) are ecstatic.
    On the other hand, people who had their gold “safely” deposited with a fund or a bullion bank or
    an unallocated pool account… are usually ruined. Don’t be among the latter group. If you still
    own GLD shares or pool account shares, You can switch from shares in GLD’s so-called “trust” to
    owning the real, physical, precious metal itself.

  15. And why else would that language be in there, unless the founders expected it to happen eventually?
    The Early Stages of a Panic The collapse of a gold lessor is often very similar to a bank run. First, a few big depositors get nervous and withdraw their gold. As word spreads, a few analysts quietly tell their clients to do the same. This strains the lessor’s reserves even more, making the collapse more likely. Sooner or later, the broader market catches on. At that point, the run begins and the implosion can happen overnight. And that brings us back to our topic today. When Greenlight Capital fled GLD, many others in the market noticed. Now other managers are abandoning ship too. As investors sell GLD shares, the fund must sell its gold. We can see the panic among GLD investors when we see that…Since early July, GLD’s gold reserve has shrunk by 60.5 tons! There are three major dangers with owning shares in GLD. First of all, several hedge funds are fleeing the ETF in favor of physical. When multiple high profile players all run in the same direction, they can start a stampede in the larger market. And if you’re in the wrong position, you’ll get trampled by the herd. Second, the hedge funds might inadvertently start a run on physical metal. Greenlight Capital alone vacuumed almost one-half million ounces off the market. The gold market was already stretched dangerously thin. Just in the last year, we’ve seen the US Mint shut down gold coin production several times because it ran out of blanks and couldn’t get more. When even the US government can’t get enough gold, what does that say about the market? Third, even if the market survives the first two dangers, GLD looks very much like a sophisticated gold-leasing operation masquerading as a fund.

  16. any reason why i can't paste into this field. i have a URL that I want to share but its long and don't want to type it in, would rather cut/paste it but can't seem to get paste to work in this comment window.

  17. Thanks for this great and informative post.
    I agree with your assessment of the described possibilities..

  18. Dave-

    Thanks for your great work! Keep in mind another reason to buy physical for newbies: You are helping your own cause! By not giving the big boyz ammo to short physical with more paper (i.e. by not buying GLD and instead buying physical metal), you are creating your own short squeeze on the paper kings. The more people demand physical metal, the higher and faster the price will move up.



  19. Hi mabman,

    I have noticed the same issue. I have Firefox and find if I right click on the comment box and select open in a new window or open in a new tab, then I can then cut and paste into the comment box.

    Hi TheBoogieMan,

    I agree with much of what you write. I am long America. The dollar collapse I see as more and more likely is gonna hurt lots of people I care very dearly about - I don't relish in this possibility.

    But I also have a lot of anger, as there are many real nasty folks out there in both the public and private sector who have and who continue to take actions that are contrary to their nation and its people's well being, and who spread economic misinformation in an effort to divert and distract.

    We are being looted, and I refuse to stand idly by because of the likelihood that those who have been mislead by our economic elite might not understand my point of view. I will not pander to their ignorance, but rather seek to overcome it by sharing knowledge and information. And I will not feel guilty for hoping for the fall of those whose destructive and exploitative schemes have caused so much harm to others.

  20. Spot on Dave.
    It's the same paper hanging bastards that got
    kicked out of the Temple 2000+ years ago by
    Who...and for WHAT?


    He Who Owns the Gold, Rules

  22. @mabman: email me at midas10k@comcast.net and I'll send you the post in one piece.

    @adam: thanks for visiting - i hit your blog all the time!

  23. GLD at this point looks more like a short than anything viable.

    However since most people do not have access to a futures account, what other way is there other than GLD to purchase gold? Assuming we do not want to contact the annoying infommercial people and pay crazy premiums on pretty looking coinage.

  24. anyone who has taken a logic class in high school can easily see that you lack support for your conclusions. you simply jump to conclusions without building the argument. sure, it's flashy and generally scary business, but you provide not a single bit of evidence that anything whatsoever is askew. i own both physical and GLD and until someone gives a real good reason why i shouldn't, i'll continue to. seriously, if you have some evidence, spit it out!

  25. @Anonymous. I'll probably try to post my research piece on GLD on this blog this afternoon. It's a fraud and, as per the report posted over multiple comment posts above, I'm not the only one who understands the loopholes in the prospectus. James Turk was the first one to put out a thorough piece detailing how and why GLD is a big gold leasing scheme over 4 years ago.

    But hey, if you want to trust HSBC, State Street and the World Gold Council with your money, god love ya.

    If anything, the burden is now on the entities running GLD to prove to the world that they really have in custody all the gold they say they do. There's enough evidence and legal holes in the prospectus to suggest they do not. They can dispel all that with one simple independent physical audit.

    If it walks, like duck, quacks like a duck and looks like like a duck...well, you what they say...eventually GLD will be a dead duck.

  26. @Arkady: depending on how much gold/silver you are looking to buy, you can buy from www.tulving.com - i buy from him personally and for my fund and he is 100% trustworthy and reliable. other's I've bought from are www.apmex.com and CNI (google that for the website). Those 2 dealers have the best prices after Tulving. Tulving requires minimum size. Apmex and CNI do not.

    Stay away from infomercials and big national coin dealers with expensive websites and marketing campaigns.

    You can also check your local craigslist. search on "gold eagles" or "silver eagles" and you'll find the folks who buy and sell coins locally. The prices aren't as tight at Tulving, but you can to cash for coin swaps in person with no paper trails. I've done that here in Denver - both bought and sold - and have had no problems.

  27. "The prices aren't as tight at Tulving, but you can to cash for coin swaps in person with no paper trails"
    Ah yes, my preference is for the no paper trail route, but then again I am a tin foil hatted type.

  28. @gyc: LOL. I know a guy in Denver who buys 1 oz. gold coins from people on craigslist in $20k lots if you have 'em to sell. He wants everything all cash/no trail.

    I'm okay with bank wires to Tulving because by the time it becomes an issue, I'll be living in Uruguay or Panama.

  29. Dave,
    I heard Dubai was a great place to retire....oh wait.

  30. Not to worry fellas, Gary Gensler here at the CFTC, and I have your back.


  31. Dave, the first post is right you know!
    Educating people to make up their own minds causes the extinction of fraud.


    Best way to own physical in my humble opinion. Forget the pretend paper gold ponzi markets.

    I also have Gold 1oz Maple leafs as the fitzch counterfeit coin detector works on these.

  33. @Dave or anyone with knowledge: Are these funds legit? Any issues/concerns with these funds?

    Thanks on the GLD info. I'm selling mine tomorrow.

    GTU (AMEX)
    Central GoldTrust (GoldTrust), formerly Central Gold-Trust, is a passive, self-governing, single-purpose trust. Its purpose is to acquire, hold and secure gold bullion on behalf of its unitholders. Central GoldTrust’s administrator is Central Gold Managers Inc. GoldTrust’s gold assets are traded internationally and are denominated in United States dollars. Gold bullion owned by GoldTrust is stored in segregated safekeeping in the treasury vaults of the Canadian Imperial Bank of Commerce (the Bank) and insurance is maintained by the Bank. As at December 31, 2008, its assets consisted of 94.8% gold bullion, 3% gold certificates and 2.2% cash and interest-bearing cash deposits and other working capital.

    CEF (AMEX)
    Central Fund of Canada Limited (Central Fund) is an investment holding company. Central Fund’s objective is to provide investment alternative for investors interested in holding marketable gold and silver related investments. The Company invests virtually all of its assets in long-term holdings of unencumbered, allocated and segregated gold and silver bullion. The Company holds at least 90% of its net assets in gold and silver bullion, primarily in bar form. As of October 31, 2008, the Company’s assets were made up of 58.9% gold bullion, 37.4% silver bullion and certificates, 3.7% cash and interest-bearing deposits and other working capital amounts

  34. Dave,

    You are absolutely correct!

    Jim Sinclair pointed out that GLD has since ammended it's prospectus to eliminate the words "gold bullion" and replace it with the words "gold investments". They don't even have to buy real gold anymore!

    Jim also points out that the amount of Gold that GLD claims to have purchased would certainly show up as price movements in the physical marketplace, but there is no trace of any such buying activity at any of the major exchanges!

    I traded in my GLD and SLV for the real thing long ago.

    John K.

  35. It is the duty of every investor to UNDERSTAND the business he is investing in: so if you buy an etf you MUST buy an etf that invests physically in gold and is independant and in addition this investment vehical should be in a safe country outside USA. Remember in the deep depresssion (1932) there was Roosevelt's bank holiday and gold trade was forbidden.
    There is only one Bank I trust: the Zuercher Kantonalbak (ZKB) in Switzerland, they have a GOLD (and a SILVER ETF) traded at the SIX Ticker: ZKB GOLD ETF (ISIN CH0047533549)
    Good luck in your investment, I shall buy a silver mining stock, (e.g. first majestic silver), because, if gold expoldes, silver will skyrock!
    Merry christmas and a happy new year, with profits from clever investments.

  36. Roly

    Thanks for your advice. I started researching the ZKB Gold ETF (Zürcher Kantonalbank). Wiki has some info on the fund:

    "ZKB Gold ETF
    The ZKB Gold ETF was launched on 15 March 2006 by Zürcher Kantonalbank and is listed in Switzerland under the symbol ZGLD. The fund invests exclusively in physical gold. The ETF has three unit classes traded in different currencies: USD, EUR, and CHF.[11] Shares are sold in 1 ounce gold units, with a minimum purchase of one unit (one ounce). As of August 2007, ZKB Gold ETF held 22.0 tonnes of gold in storage.

    The gold bars used are not LBMA good delivery[citation needed] and investors can not sell in the spot market. The metal has to be sent back to a refiner for recasting and stamping. This means the NAV is erroneous as it uses the London fixing which is only available for LBMA good delivery. The ETFs only have one market maker which is ZKB and there is no verifiable bar list or independent audit of the gold."

    There is more info on Gold EFTs at: http://en.wikipedia.org/wiki/Gold_exchange-traded_fund

  37. interesting,very nice i appreciate what is says here.