http://finance.yahoo.com/blogs/breakout/gold-etfs-liquidating-ton-112206437.html
Impact on the price of gold?
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That's History.
Most likely, the Gold Low is in - on Monday
The action since then suggests a Double Bottom has been made
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Remmy
11 yrs ago
Yip - Buffett says he wouldn't even buy it, even at $800. Deutsche Bank has forecasted a year end price of $1050. Paulson has lost half the value of his fund on a nonsensical bet. Nonsensical, because as I have explained gold cannot be accurately valued. As Buffet says "you buy it, and you hope someone else will come along and pay more for it". And as I have said before, gold is an inherent bubble (kind of ironic, considering how much Ed hatesand fears bubbles!)
Ed was suggesting we continue to buy gold right during the time the price had peaked. (Time will tell if that was good advice or not).
Meanwhile, if I look back at some of my prior posts, I posted fortuitously perhaps the following: "Finally, a reminder to heed my prior cautions against gold. People who got caught up in the foolishness of that bubble may soon be burned."
http://hongkong.asiaxpat.com/forums/hong-kong-property/threads/150510/investing-tips-by-remmy/
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If you look at charts, or pay attention to sentiment,
I think a very good case can now be made for buying Gold
http://img29.imageshack.us/img29/729/44373979.png
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I am not certain that the following is correct, but I believe that the GLD only decreases gold holdings when its investors demand physical in exchange for their ownership interest in the Trust. What shows on the GLD balance sheet as a liquidation of assets is instead just investors exchanging paper Trust holdings of gold for the physical gold itself. If anything a decline in the holdings of the GLD is a strong signal for gold because it shows that the largest investors no longer trust the financial claim they have on the gold but instead demand to own the gold directly itself (and shove it away in a vault where they know it cannot be rehypothecated or confiscated).
Also only the largest investors are able to redeem GLD shares for actual gold, the prospectus says you need a "basket" of 100,000 (assuming a basket of Trust shares). So if my understanding is correct that a liquidation is actually only a sign of investors swapping paper claims for real gold, then this is a sign that the biggest investors are getting worried about the stability of the financial system.
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Ed
11 yrs ago
Further on this ... paper gold is supposed to be backed by real good... it absolutely is NOT. Fractional banking is in play here i.e. paper gold to PM is something like 10:1...
So if even a small fraction of those holding paper ask for their PM... the game is up... the banks don't have it.
Many are speculating that this is the reason that the authorities are crashing the price of gold... they are trying to drive people out of PM....
It is having the opposite effect.
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Lucane01 - your description of the process for removing physical gold from GLD is something that a number of ETFs have. Large institutional investors can either contribute the underlying asset (shares, gold, whatever) that the ETF is tracking in exchange for units or surrenter their units in exchange for the underlying. The idea is that by allowing this to happen, they will arbitrage away all or most of any premium or discount between the NAV and the price at which the ETF trades on whichever exchange it is listed on.
As to why they are exchanging units for physical gold - we can only guess. I am sure that there are some investors who have decided that they prefer physical gold but there are probably also traders who are arbitraging the wild swings that the price of gold is experiencing and others who need the physical gold to settle other delivery obligations.
The other explantion (which is strictly for those who believe that the price of gold is being manipulated downwards*) is that by making large withdrawls of physical gold whoever it is that is doing the manipulation hopes to encourage other investors into to panic selling.
*I remain skeptical of claims that the price of gold is being manipulated.
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Ed
11 yrs ago
TI: I am not sure why you'd be skeptical in light of the Fed's very obvious manipulation of the stock, bond and housing markets.
Bernanke has stated emphatically he is employing QE specifically to manipulate these markets.
So why not gold?
We all know that if people flood into PM Bernanke's game is up .... that = loss of CONfidence in fiat currencies.
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@ Ed
That is partially correct. Some of the ETFs are supposed to be fully backed by physical gold and some are supposed to be fully backed but can lend their gold out. Allocated and unallocated precious metals account at the likes of Perth Mint are supposed to be fully backed by physical (with a government guarantee). Notional accounts have no physical backing at all.
My own HK$0.02 worth is that there are only three good ways to invest in gold:
1. physical gold that you hold yourself - if you want to make sure that you own the gold and can get your hands on it should the financial world go pear shaped, then this is the only way to go. Anything else involves putting at least one intermediary between you and your gold. Of course, if you do take possession, you have to keep it both safe and accessable. My very small allocation to gold is in a safe deposit box.
2. if you do not feel a need to physically hold the gold, then notional precious metals accounts at major banks are my preferred option. The spreads are lower than most other options and there are no on-going charges. You are, of course, taking credit risk on the bank concerned but the reality is that you are taking some kind of counterparty risk for all forms of gold investment (other than personal physical possession). Almost all my silver is held through a notional account at Bank of China (HK).
3. gold mining shares - a completely different investment but if gold starts trending upwards again I would expect at least some of the gold mining companies to rise much faster than the underlying price of gold. I do not hold any gold mining shares at this time.
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Ed
11 yrs ago
A hedge fund manager indicated to me that all gold paper is based on fractional banking... not sure if that is true... but if you want to hold gold as a hedge I recommend you get your hands on PM and find somewhere secure to store it.
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Ed - I think that depends on what is meant by "paper gold". Some of the products available are unquestionably based on fractional banking, but not all of them (although the answer will depend on your definition of what is paper gold).
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Remmy
11 yrs ago
On item 3, Gold Mining shares, this was what I bought and I relized a 3x increase in stock prices vs the price of physical gold over the time I bought due to the leveraged exposure miners have to the actual gold price. Not suprisingly my mining shares peaked with the gold price, but perhaps suprisingly they are only down around 10% off that peak to date.
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A very well balanced article on gold as an investment: http://knowledge.wharton.upenn.edu/article.cfm?articleid=3265
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What?
Down only 10%?
Which stocks are you in? Most have dropped way more than that
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A lot of the (mostly Australian) gold mining companies I have looked at are down 50+% from their highs. Closer to home, Zijin Mining hit a 52 week low today. I have to admit to being tempted to buy either a few shares in gold mining company with a solid balance sheet or some physical gold (small investment only) but, right now, I do not feel in a hurry to make any investment.
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