Looking at the current environment and seeing that there seem to be discrepancies developing in the spot/physical markets for commodities versus the futures, I am thinking of ditching all my precious metal ETFs and converting them to a physical from - e.g. coins, bars or Goldmoney. I've found the ETFs such as GLD, GBS and SLV convenient for making regular investments into precious metals over the last few years but the more closely I examine their ownership it seems very unlikely that the gold or silver they own is unencumbered.

My eyes glaze over when faced with reams of pages in the prospectuses, but for example here are some bits of concern I've noticed while scanning the Lyxor Gold Bullion Securities (GBS) prospectus:


1. Under "Redemption and Payment in gold"

"Should the Security Holder demand payment in gold he must provide the Company with a redemption notice specifying an unallocated
gold account with an LBMA member clearing bank in London to which the gold shall be transferred and must pay the Redemption Fee."

If I wanted delivery of gold I would certainly not want unallocated gold. I don't understand why I couldn't receive allocated gold or delivery of a gold bar


2. GBS says its gold is not insured against loss or theft.

"The Custodian has no obligation to insure such gold against loss, theft or damage and the Company does not intend to insure against such risks. Accordingly, there is a risk that the Secured Gold could be lost, stolen or damaged and the Company would not be able to satisfy its obligations in respect of the Lyxor Gold Bullion Securities

Why would no insurance be taken out? I don't regard myself as overly paranoid, but might it be because you wouldn't be able to get insurance for gold which is leased to other parties?


3. Under "Custody Services"

"Unless otherwise agreed between the Trustee and the Custodian Secured Gold will be held at the Custodian’s London vault premises or, when gold has been allocated in a value other than the Custodian’s London vault premises, by or for any sub-custodian permitted as described in paragraph 6 below."

What the hell does "when gold has been allocated in a value other than the Custodian’s London vault premises" mean?


4. The prospectus says the gold is allocated and seems to imply it is held in the company's name:

"All such gold will be held in the Secured Gold Accounts. An amount of such Secured Gold not less than the Combined Entitlement to Gold of all outstanding Lyxor Gold Bullion Securities will be held in the Secured Allocated Account, where it will be held in "allocated" form (that is, as uniquely identifiable London Good Delivery bars) other than to the extent that any such gold is required to be transferred to the Secured Unallocated Account to effect a redemption."

The word 'allocated' is defined as "uniquely identifiable London Good Delivery bar", but it isn't defined in the formal list of definitions at the end of the document whereas 'unallocated' is.


To be honest for a layman like myself I find a prospectus like this extremely confusing, and I just get to feel uneasy that something is going on that I can't put my finger on. If ownership of the gold bullion was clear and straightforward surely it wouldn't be so difficult to describe it in the prospectus?

I would like to think the ETFs were fine as they are an easier and cheaper to acquire, but I also feel they would be an easy target for governments to hit in an extreme crisis. The main use I can see for the ETFs might be for hedging by going short at interim tops when you might still want to hold on to physical and for short-term trading PMs.

Cbs7, you raise some interesting points as a result of your due diligence and I must say I have my concerns about the control and security of this method of investing.

My concerns have been heightened by a paragraph in an interesting article here:

http://www.321gold.com/editorials/willie/willie041608.html



Anyone care to comment?

The extreme crisis scenario needs to be clearly defined because in that situation it is not only Government that you would need to be fearful of in taking your gold and silver. The bottom line is that perhaps only if you are holding the physical would it be safe, but what kind of society would we be living in under such circumstances? Who would you be able to trust if you needed to use your gold and would you really want to be holding it and looking over your shoulder every time you went out? There would be many people out there who would be prepared to take it off you in a less courteous way than the Government might. In the most extreme scenario, an AK47, lots of ammunition and friends in low places may be more important than owning gold.

GTG, yes my feeling is that GLD and SLV are likely leasing out their physical gold and silver in some manner. I feel that if you are going to accumulate significant amounts of Gold/Silver it is a better idea to either take physical delivery or have a secure allocated account somewhere in a country that probably won't default on its debt.



Good point No6 and it's something which concerns me, I'm sure some people in Weimar Germany did very well out of the hyperinflation, but look at what happened afterwards. Do you think if hyperinflation happened in the UK or US there would be a breakdown in society or a real dictatorship? If I felt this was the likely outcome of what is going to come, then I think I would actually move myself and my assets to another country over the next 18 months. This would have to be to a region of the world which was much more stable. My personal preference at the moment would be South America which I feel is still relatively cheap and yet still culturally not too dissimilar to Europe.

This is also something I have been thinking about for my Silver investment.

One of the main arguments for Silver is the concentrated Short position which might unravel at some point in the future (as David Morgan puts it: "catch the silver bluff") and generate a squeeze and a crisis which should result in a dramatic price increase..


What do you guys think of Futures instead of ETFs? It appears more safe to me as there is no risk of confiscation since one does not hold physical silver (it can therefore not be confiscated). In case of crisis I would have thought that the spot price of Silver would go up (hopefully a lot), governments might try to confiscate some silver held by individuals/corporations (such as ETF - making the value of the ETF "disconnect" from the spot price and collapse) but I can not comprehend how this could drive the actual spot price down and affect the futures market. Therefore the value of the Futures contract should go up in a similar way to holding physical.

On the other hand I always hear advice from specialist market commentators saying "Make sure you get physical delivery of your precious metals!"

Is my approach too naive and do we all really need to hold physical (in a swiss bank vault for example)?

I am assuming also that holding miners would a risk in case governments impose drastic measures on them by confiscating their production.
Is this too paranoid?

I think you may be right, especially after having read DB's post No.7 here http://www.greenenergyinvestors.com/index....amp;#entry36653 and having been to the site via the link in his post. I'm beginnng to think actual physical possession is the safest way to keep PM's despite the security risks that entails. Even keeping it in a banks safe deposit box would not be safe in a worst case scenario as these vaults are monitored by CCTV so it would n't be difficult for the operators to see what you are depositing. Having said that, in a worst case scenario legislation would be passed at the drop of a hat giving government authorities the power to search these vaults. Allocated account would n't stand a chance unless they were in unaffected countries.

cbs7, why on earth would ETF's or anyone lease out physical gold or silver? There's obviously some rational explanation for this which I cannot think of.

lardoon, see the link above.

I found this on the manipulation of Gold, gauranteed to change most peoples perception of "Free" market capitalism. If these practices were carried out by any other business entity I feel sure they would be "had up" for fraud, false accounting, corruption, insider dealing and other inditable offences.

http://www.fnarena.com/index2.cfm?type=dsp...5A89CE1B0211129

The light at the end of the tunnel is that the manipulation will back fire on the perpetrators, hopefully in the not to distant future.

When that happens anyone fancy setting up a cabal

I personally use these ETF's and will continue to do so. There is always the posibility of something bad happening to them but I think the chances are slim and I will take the risk. I remember once on fox business news one of the panelists recommended GLD etf and Peter Schiff agreed with him and Peter is probably the most bearish person I know. I think the only reason that people are advised to take physical delivery is support the price by ensuring that metal actually exists and is not leased elsewhere. Although there is a lot of paper gold/silver about I obviously like to be invested in physical metal but my main priority is to make money as as long as I get my money back I have no problem.

EDIT: I've read that one before, and it is very good

If you've not seen it, I think this is one of the most detailed articles I've seen so far:

Chris Powell: There are no markets anymore, just interventions
http://gata.org/node/6241

I tend to be in the "muddle through" camp, things will get tough, but not as bad as some would predict (i.e.) breakdown in society or dictatorship. Also, when we talk about hyperinflation, even Puplava when pushed will say, "30%" for the US. Well, 30% while high can be survived. I doubt whether we will see a Weimar, Zimbabwe or Argentina hyperinflation in the US or UK, regardless of fiddled figures.

I have a theory that minor countries with real, hyperinflation are often allowed to be sacrificed, and if they call for help, as in Argentina, the IMF, US acts. If they play ugly, as in Zimbabwe, they will be allowed to go under. Seems hard, but that's how it is. Major economic powers however, like the US, UK, Japan, Europe, China, will ultimately address a potential hyperinflation scenario, Government and central banks will act. Failure to do so can only lead to the ultimate destruction of the fiat money system that they have done so much to build up and they know this. Now this may seem controversial given that the US is doing nothing to fight inflation right now, but again, my view is that if it is a problem once the new President gets elected, then it will be addressed during the first two years of the new Presidency. No one should under-estimate the willingness of politicians and central bankers to play hard ball on these issues. They did it in the late 70's, 80's, when many of the arguments being put today were around then. China to some degree is already doing it now, I expect the US and UK to follow at some point.

Oh, and by and large I think money will be safe in the gold and silver ETF's, although like any business there is a risk some will go under because of the vagaries of human behaviour.

As for South America, it hardly has a history of peaceful economic safety. Hyperinflation can often be found there and as I say, these countries can and often are, sacrificed.

I would hope you are right No6 - I suppose it depends how far you think the government will actually be able to contain the situation, and whether things spiral out of control. I do believe there is an element of manipulation in the gold market although I doubt it is probably quite as deliberate and planned as some believe. I do seriously think though there is a very real risk of the ETFs being confiscated or forcibly sold perhaps to purchase goverment bonds in the event of a serious crisis. To my mind it would be too tempting for a government not to "in the national interest" of course. I also believe pensions are another easy target - e.g. they will be forced to purchase 0% government bonds.

To me there is little harm in having physical gold versus paper gold other than paying higher premiums so potentially reducing the amount of profit. I feel we are in a period of increasing mistrust of paper assets which was of course one of the reasons so many people invested in property and real estate, they just made the mistake of taking out paper contracts for huge amounts of debt to purchase the physical property. Also the beauty of physical gold is that it is a lot more anonymous than electronic transactions and again it is much liquid accross borders than national currencies.

Yes I agree about South America, but its recent history is why I am interested - many countries there have been through the pain of a hyperinflation. Also in the case of escalating global conflict my feeling is it is a region that hasn't really gone out of its way to piss off as many other countries as possible (e.g. Russia, China, the Middle East) as in the case of the UK and US. Alternatively I would favour Asia.

My guess is simply to make a bit more cash - not necessarily to manipulate the gold and silver market, though it is a possibility - just simply to boost the fund managers' Xmas bonuses

lardoon, I don't know what your experience is trading, but the danger with futures are that you will be leveraged and the silver market is exceptionally volatile. If you have an ETF that you have paid for you can't get shaken out by the violent swings as you won't be getting forced margin call sale. If you are nimble enough (I'm not) I imagine you could make (or lose) a fortune. The futures market might possibly disconnect with the spot price if physical delivery became a problem (some commentators have suggested this), and it is difficult to find a broker who will agree to physical settlement.


Does anyone know any resources for researching Swiss banks? Obviously a lot of the larger players like UBS seem to have been trying to boost their profits getting involved in derivatives, but there must be some conservatively run Swiss banks out there?


It is possible that windfall taxes could be imposed on miners - see the windfall taxes imposed recently on North Sea oil companies.

Thanks for that Steve, absolutley astounding.

A repo fund.... $360 billion!!!!!

Power corrupts and absolute power corrupts absolutley.

I loved this paragraph which succinctly sums up the motives for the manipulation:



I think it's also a good enough reason for everyone on the planet to go out and buy some physical in the interests of a fairer and more just world.

It makes one wonder how long there antics can go on, I may be six foot under before the day of reckoning arrives.

I've just posted his on the gold thread:

Gold and Silver Breakout on the Failure of US Brand of Capitalism
Commodities / Gold & Silver May 22, 2008 - 03:38 PM

By: Jim_Willie_CB
http://www.marketoracle.co.uk/Article4804.html




I wish to declare a blatant vested interest.
The more people that switch from ETFs to buying physical, the less physical gold/silver there is to short, and the less manipulation is possible, and the higher the price will go.

A very important point indeed for investors the repercussions of which could benefit the general populace in the dilution of central bank power.

I have some in ETFS's Physical Gold and Silver in which the serial numbers of the bars are listed on their website, are these OK? http://www.etfsecurities.com/cslgb/etfs_physical_gold_gb.asp and http://www.etfsecurities.com/cslgb/etfs_ph...l_silver_gb.asp

In regard to oil and gas, I wonder how he expects us to take physical possession?

Maybe next time Frizzers interviews JT he can ask if he has any plans to open an Oilmoney or Gasmoney?

As someone who has never bought ETFs in PMs I can't claim to be an expert.
So I tend to listen to what experts I tend to trust are saying.
I think some ETFs are better than others.

What worries me with them is are they "100% backed by physical gold in the vault" ?

This sort of statement is lacking clarity IMO:



OK, they appear to have gold bars. But does the stock in the vault match what people have paid for ?

It doesn't sound the same to me as the GoldMoney/Bullion Vault statements, where they say "you own the gold".
And so there is gold matching what people have paid for, and there is no counter-party risk.

"Maybe next time Frizzers interviews JT he can ask if he has any plans to open an Oilmoney or Gasmoney?"

Doesn't that just explain why gold/silver are used as money ?
Think of the cost of storing crude oil & gas !!!!!

You can't short GM or BV gold/silver

I hear what you're saying and I do agree that BV and GM are guaranteeing that the bullion is yours and sitting in their vault which is obviously much better than ambiguous statements. The reason I went down the ETF path is that I used monies from my self invested personal pension (SIPP) and my plan provider does not accomodate for BV or GM investments. In fact there are only a limited number of plan managers in the UK that do. I will have to go through the up heaval and cost of changing plan managers if I want to go to BV or GM and I know for a fact they are a lot more expensive than my existing arrangement. Also, BV and GM are expensive IMHO. Anyway, that's something for me to consider.

"



I was laughing when I said that, please don't sound patronising.

I was laughing when I wrote my reply too. Sorry if it sounded patronising. It wasn't supposed to.

"OilMoney - When you buy oil with us, it is owned by you, and stored safely in fields in London and Zurich. And each barrel has a serial number and listed in our inventory. Delivery is possible at a fee. But we normally suggest you go to your local petrol station.

And you can exchange and pay for goods with oil litres."



Very interesting what you say about SIPPs. I can understand the dilemma.
I've been meaning to look into that myself.

yes, nice one



Now you've got me confused...... New Zealand....... SIPP's?

Al talks with Pat Gorman, President of Resource Consultants, about the pros and cons of taking physical delivery of gold and silver.

http://www.kereport.com/audio/0524-01.mp3

Listen to what he thinks about ETFs.

I have money in a UK pension scheme
I'd feel safer if it was invested in gold/silver

I started to research SIPP options with regard to holding bullion some time ago but that came to a halt when I discovered I could buy into an ETF within my existing low cost arrangement. Obviously I was less informed then.

Here you can find a list of plan providers that deal with BV, who knows on further investigation they may also deal with GM http://www.goldsipp.com/sipp_pension_providers.do http://www.goldsipp.com/index.do

I understand James Hay is also a possibilty http://www.jameshay.co.uk/Sipp/index.aspx

I feel sure this issue woud be of interest to the UK membership so to it may be worth starting a new thread to discuss this if there is n't one already in existance.

Brilliant, thank you GTG

I agree, it's an important subject, and a new thread would be good.

You're welcome.

In the light of what's being discussed here I'm looking to liquidate my G&S ETF holdings within my SIPP and invest in the closed end Central Fund of Canada (AMEX:CEF) (TSE:CEF.A) (TSE:CEF:U) http://www.centralfund.com/. The fund holds physical bullion and is split approximately 50/50 G&S.

It will still mean a switch of SIPP plan manager from Alliance Trust Savings (whom LSE listed equities are the only options) to Sippdeal http://www.sippdeal.co.uk/home.aspx.

Sippdeals standard product is similar to my existing plan manager in that there is no annual management charge, however dealing commissions are slightly higher and a transfer in fee of £50 would be payable.

The international investment choices with this standard product are described as " A range of US and euro shares is also available." I confirmed with them that (AMEX:CEF) was elligible but not on TSE, I'm wondering as a UK investor if it would make any difference which exchange I used? My understanding is that currency denomination is not an issue. Clarification on this point and any comments as to the appropriateness of the Fund would be appreciated.

TIA

I'm making a note of what you post GTG, thanks

More on ETFs:

International Forecaster May 2008 (#9) - Gold, Silver, Economy + More

By: Bob Chapman
http://news.goldseek.com/InternationalFore.../1212344040.php

Here is CEF compared to other Etf's ps they also have GTU which is 100% gold no silver they have been in business since 1960 I think long before Etf's were thought of.


Comparison of Four Precious Metal Investment Vehicles to Spot Gold


http://jessescrossroadscafe.blogspot.com/2...ce-of-four.html

It's been a while since I first brought up my concern, and I took steps to sell my GLD, SLV, GBS.L, SLVR.L and reallocate them into what I consider safer bullion equivalents. For me Goldmoney is likely the safest of all, however I like to maintain some diversification so I found some Swiss ETFs run by ZKB Bank which I feel are safer (am I naive to think this?) and have used these to maintain a little more liquidity with a smaller fraction of my precious metals. If anyone is interested the ETFs are below, and demoniated in Swiss Francs:

ZGLD ZKB GOLD ETF
ZSIL ZKB SILVER ETF
ZPLA ZKB PLATINUM ETF
ZPAL ZKB PALLADIUM ETF

I can also get some easy platinum and palladium exposure with these which I feel is useful.

Something interesting about Central Fund of Canada was that it seems to be trading at a premium to net asset value lately which I don't really understand given that the underlying assets are simply gold and silver bullion. Although I think CEF is a safe investment I actually sold my holidngs here too as I felt the premium was unjustified - am I missing something about CEF?

A WARNING ABOUT ETFS

I ve had a quiet moment to think about this. When inflation gets even worse, and the finger is firmly pointed at "speculators", ETFS will be shut down.
Its no coincidence that inflation has really started to acelerate, when ETFs were being introduced, its only a matter of time before people put two and two together.

I don't believe we are near to this event, and when it happens it will possibly signal the end of the commodities bull run or at least cause a significant correction.

They will try to raise interest rates possibly first, then force sell only orders on ETFs. This maybe 2 years off.

Note - I hold precious metals ETFs, but remain viglant on rule changes.

Good point, not a new.

I like Bob Chapman, but he is wrong about good gold juniors. They have not provided good leverage to gold over the past year or so. That may change, but for now it is the case

Do you mean a compulsory purchase or that holders will lose all or a proprtion of thier money?

I do not know how such a occurance would play out. You can't beat city hall as they say, thats for sure.

http://www.morningstar.co.uk/UK/funds/arti...&validfrom=

New ones seem to be popping up every month, add to this that the UK listings are very unrepresented compared to the states and you've got a growing industry with (as the author above said) all the financial and politcal clout associated with it.

http://seekingalpha.com/article/8489-compa...cef-gld-iau-slv

Thanks for the alternative ETF's BTW