You are here
No debt relief, no yuan float, empty promises on U.S. deficits -- what success!
By Howard Ruff
The Ruff Times
February 2005
http://www.rufftimes.com
I recently got a phone call from a subscriber, David Homes. He is a
very sophisticated and significant gold investor. He has been
viewing with alarm the development of exchange-traded funds, or
ETFs. They will be touted more and more but he has some serious
reservations. I asked him to write an article. Read it carefully,
and I have some comments at the end of the article.
* * *
By David Homes
You're bound to hear about the latest craze in gold investing: GLD.
This "exchange-traded fund," or ETF, is supposed to make gold
investing simple and convenient.
Each share of GLD is valued at one-tenth of an ounce of gold's
current market price. Apparently GLD merely "tracks along" with the
current spot price of gold with no real ability to redeem your
shares for physical metal. To me this sounded like some kind of side-
betting racket, so I contacted Merrill Lynch for some answers.
Merrill Lynch is offering GLD, but for serious questions the local
broker referred me to the powerful research department in New York.
They raised more questions than answers.
My next stop was the Securities and Exchange Commission. After the
expected pinball routine, I ended up chatting with one of their
enforcement lawyers, who indicated that I was not the first GLD
prospect with concerns. Evidently GLD was facing the possibility of
a formal investigation after just a few weeks of operation.
It would appear that the legal structure of GLD was so carefully and
intricately conceived that it was able to circumvent even the most
basic disclosure and reporting requirements of the SEC itself. What
are they trying to hide? No publicly traded company enjoys this kind
of privacy.
I learned that the ambiguous World Gold Council was involved with
GLD, so I contacted them next. After many attempts and several days,
I finally made a meaningful connection. My first question addressed
the opacity of GLD. The WGC official's response was simply not
credible. He said, "Because we are dealing with gold, the SEC
requires that we adhere to certain security procedures."
He told me that all gold was held in London in the HSBC vault. My
next question was my last: "Are client funds backed up with 100
percent physical gold, or would you be including future-production
pledges as part of the assets?"
"Sir, I really cannot discuss this with you because of the way we
are structured. Good day."
Bottom line: The problem I have with the whole idea of ETFs is this
opacity and the potential drag that it could represent to the real
gold market.
The best insurance for a strong gold bull market is, of course,
physical ownership of the metal by the public -- period.
At best ETFs represent something less than 100-percent real-market
impact. At worst ETFs are just the latest scheme by major gold
interests and the Silver Users Association to maintain price and
inventory controls. By creating a popular side-betting mechanism,
they are able to divert and neutralize billions of dollars that
otherwise could have a major impact on the price and supply of the
physical metals.
In fact, that these ETFs are popping up could mean that metal
inventories are getting desperately low.
Prove me wrong. I'll give 100 ounces of silver to the first person
who can convince me, with evidence, that GLD is not a Trojan horse.
Until then, my money is on physical metal and quality mining shares.
* * *
David's essential gripe is that buying shares of GLD will not take
gold off the market and reduce supplies as a normal gold purchase
would, raising the price. Consequently, GLD will have no effect on
the gold price. Perhaps GLD is useful as a tracking mechanism but
lacks the real-world effect on price. In other words, the world
could buy GLD and gold wouldn't budge an inch.
-- Howard Ruff
----------------------------------------------------
To subscribe to GATA's dispatches, send an e-mail to:
gata-subscribe@yahoogroups.com
To unsubscribe, send an e-mail to:
gata-unsubscribe@yahoogroups.com
----------------------------------------------------
RECOMMENDED INTERNET SITES
FOR DAILY MONITORING OF GOLD
AND PRECIOUS METALS
NEWS AND ANALYSIS
Free sites:
http://www.cbs.marketwatch.com
http://www.capitalupdates.com/
http://www.silver-investor.com
http://www.thebulliondesk.com/
http://www.goldismoney.info/index.html
http://www.minersmanual.com/minernews.html
http://www.a1-guide-to-gold-investments.com/euro-vs-dollar.html
http://www.investmentrarities.com
http://www.kereport.com
(Korelin Business Report -- audio)
http://www.plata.com.mx/plata/home.htm
(In Spanish)
http://www.plata.com.mx/plata/plata/english.htm
(In English)
http://www.resourceinvestor.com
Subscription sites:
http://www.lemetropolecafe.com/
http://www.interventionalanalysis.com
http://www.investmentindicators.com/
Eagle Ranch discussion site:
http://os2eagle.net/checksum.htm
Ted Butler silver commentary archive:
http://www.investmentrarities.com/
----------------------------------------------------
COIN AND PRECIOUS METALS DEALERS
WHO HAVE SUPPORTED GATA
AND BEEN RECOMMENDED
BY OUR MEMBERS
Blanchard & Co. Inc.
909 Poydras St., Suite 1900
New Orleans, Louisiana 70112
888-413-4653
http://www.blanchardonline.com
Centennial Precious Metals
3033 East First Ave., Suite 807
Denver, Colorado 80206
1-800-869-5115
http://www.USAGOLD.com
Michael Kosares, Proprietor
cpm@usagold.com
Colorado Gold
222 South 5th St.
Montrose, Colorado 81401
http://www.ColoradoGold.com
Don Stott, Proprietor
1-888-786-8822
Gold@gwe.net
El Dorado Discount Gold
Box 11296
Glendale, Arizona 85316
http://www.eldoradogold.net
Harvey Gordin, President
Office: 623-434-3322
Mobile: 602-228-8203
harvey@eldoradogold.net
Gold & Silver Investments Ltd.
Mespil House
37 Adelaide Rd
Dublin 2
Ireland
+353 1 2315260/6
Fax: +353 1 2315202
http://www.goldinvestments.org
info@gold.ie
Investment Rarities Inc.
7850 Metro Parkway
Minneapolis, Minnesota 55425
http://www.gloomdoom.com
Greg Westgaard, Sales Manager
1-800-328-1860, Ext. 8889
gwestgaard@investmentrarities.com
Kitco
178 West Service Road
Champlain, N.Y. 12919
Toll Free:1-877-775-4826
Fax: 518-298-3457
and
620 Cathcart, Suite 900
Montreal, Quebec H3B 1M1
Canada
Toll-free:1-800-363-7053
Fax: 514-875-6484
http://www.kitco.com
Lee Certified Coins
P.O. Box 1045
454 Daniel Webster Highway
Merrimack, New Hampshire 03054
http://www.certifiedcoins.com
Ed Lee, Proprietor
1-800-835-6000
leecoins@aol.com
Miles Franklin Ltd.
3015 Ottawa Ave. South
St. Louis Park, Minn. 55416
1-800-822-8080 / 952-929-1129
fax: 952-925-0143
http://www.milesfranklin.com
Contacts: David Schectman,
Andy Schectman, and Bob Sichel
Missouri Coin Co.
11742 Manchester Road
St. Louis, MO 63131-4614
info@mocoin.com
314-965-9797
1-800-280-9797
http://www.mocoin.com
Resource Consultants Inc.
6139 South Rural Road
Suite 103
Tempe, Arizona 85283-2929
Pat Gorman, Proprietor
1-800-494-4149, 480-820-5877
Metalguys@aol.com
Swiss America Trading Corp.
15018 North Tatum Blvd.
Phoenix, Arizona 85032
http://www.swissamerica.com
Dr. Fred I. Goldstein, Senior Broker
1-800-BUY-COIN
FiGoldstein@swissamerica.com
The Moneychanger
Box 178
Westpoint, Tennessee 38486
http://www.the-moneychanger.com
Franklin Sanders
1-888-218-9226, 931-766-6066
----------------------------------------------------
HOW TO HELP GATA
If you benefit from GATA's dispatches, please
consider making a financial contribution to
GATA. We welcome contributions as follows.
By check:
Gold Anti-Trust Action Committee Inc.
c/o Chris Powell, Secretary/Treasurer
7 Villa Louisa Road
Manchester, CT 06043-7541
USA
By credit card (MasterCard, Visa, and
Discover) over the Internet:
http://www.gata.org/creditcard.html
By GoldMoney:
http://www.GoldMoney.com
Gold Anti-Trust Action Committee Inc.
Holding number 50-08-58-L
Donors of $1,000 or more will, upon request,
be sent a print of Alain Despert's colorful
painting symbolizing our cause, titled GATA.
Donors of $200 or more will receive copies
of "The ABCs of Gold Investing" by Michael
Kosares, proprietor of Centennial Precious
Metals in Denver, Colorado, and "The Coming
Collapse of the Dollar" by James Turk and
John Rubino.
GATA is a civil rights and educational
organization under the U.S. Internal Revenue
Code and contributions to it are tax-deductible
in the United States.
