Chart of the Day: gold vaults filling up fast

Any one contemplating these "structured" products should take heed from the GLD prospectus:

"The prospectus further warns that the gold held in trust (inside HSBC’s secure vault) could be “lost, stolen, or damaged”. On top of that, the prospectus adds that the Sponsor can block “redemptions” (indefinitely) any time it decrees there to be an “emergency”. Quite obviously, the gold held by the Custodian “belongs” in every meaningful sense to the Sponsor and Custodian – not the unit-holders.

The bankers may easily turn on you. You have been warned!

Ref: http://www.bullionbullscanada.com/index.php?option=com_content&view=article&id=22649:d-day-near-for-gld&catid=48:gold-commentary&Itemid=131

The chart is based on value not mass.

As gold has increased in value significantly during this period, a chart showing mass would show a substantially smaller increase

Their is not tat much physical gold around which is why there are so many companies trying to buy gold from the public.

They even come round to your house and knock on the door.

Gold has a long, long way to go yet

If you are buying gold for safety do not buy an ETF- or if you can't help yourself for goodness sake read the prospectus first as Truffle Hunter has done. Also, find out the difference between allocated and unallocated bars. And you might want to know a bit more about the recent "audit" by a journalist when the bar he held up in front of the camera to prove it existed turned out not to be on the daily audit list! I follow several PM bulletin boards. None of the long-standinginvestors who comment on this subject will have anything to do with a gold ETF.

If everything really does go wrong and the price of gold rockets you will have to pay tax on most of your proceeds. In the event of a true hyperinflation you might find your gold has held its real value but most of the increase in price will be taxed away and you will NOT have preserved your wealth.

There are alternatives but I am buying these myself at the moment so I'm keeping quiet about what they are!

Some one is not very good at maths! $125 billion $ is peanuts.

2365 tonnes = 2365,000,000g = 83,423,000oz

@ $ 1757/oz = $146.6 billion

a factor of over x1000 out .....

unless of course they are using the lesser used "billion = million x million" where as most folks (particularly the US and the numbers are quoted in US $) use "billion = thousand x million".

Zaydac. There was a report the other day that the Canadian mint is going to launch an ETF that is backed by actual physical.

The attraction here is that it will be State backed.

If anyone is going to play it straight it would appear that the Canadian Government might be one possibility on what must be a somewhat short list.

I am told that Sprott does something similar, however I know nothing about them, maybe someone here does.

Stormdog

You are correct

OTTAWA, Ontario -- The Royal Canadian Mint is pleased to announce its initial public offering of exchange-traded receipts (ETRs) under the mint's new Canadian Gold Reserves program. Each ETR provides evidence of ownership in physical gold bullion held in the custody of the mint at its facilities in Ottawa, Ontario. The Canadian Gold Reserves program marks the expansion of the mint's successful core bullion and refinery business.

"We believe that this new program will build on our reputation and continued success as a world-class custodian of precious metals," said Ian E. Bennett, president and CEO of the Royal Canadian Mint. "With the introduction of the Canadian Gold Reserves ETR program we hope that investors will see this as a convenient, efficient, and secure method for investing in and owning physical gold."

Unlike other gold investment products, the purchaser of an ETR owns the actual gold rather than a unit or share in an entity that owns the gold. The net proceeds of the offering will be used to purchase gold on behalf of the initial purchasers of ETRs at the London p.m. fix price on the closing date of the offering (closing date). Subject to certain restrictions, ETR holders will be entitled to redeem their ETRs for physical gold products in the form of 99.99 per cent pure gold bars or coins, or for cash based on the future gold price or market price of the ETRs.

Subject to market conditions, the initial offering of ETRs is targeting an issue size of approximately C$250 million. The issue price per ETR will be C$20 or the U.S. dollar equivalent and the Per ETR Entitlement to Gold will be determined on the closing date and will be reduced daily by an annual service fee of 0.35 per cent.

Subject to the satisfaction of certain conditions, the ETRs will be listed on the Toronto Stock Exchange and commence trading on the closing date. ETRs will be listed in both Canadian and U.S. dollars and may be traded in either currency.

Through a competitive process, the Mint has selected a syndicate of investment dealers led by TD Securities Inc. and National Bank Financial Inc., and including BMO Nesbitt Burns Inc., CIBC World Markets Inc., RBC Dominion Securities Inc., Canaccord Genuity Corp., Cormark Securities Inc., MGI Securities Inc., and Raymond James Ltd. to distribute the ETRs on a best efforts agency basis.

Closing is expected to occur in late November 2011. The offering is being made on a prospectus-exempt basis pursuant to the terms of an order of the Ontario Securities Commission dated August 30, 2011.

The ETRs have not been and will not be registered under the U.S. Securities Act of 1933, as amended, and may not be offered or sold in the United States. This media release shall not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any offer, solicitation or sale of the securities in any jurisdiction in which such offer, solicitation or sale would be unlawful.

Stormdog -

Sprott is probably OK. The Canadian scheme also sounds OK. Another reliable organisation is Bullionvault. I bought some gold there, sold some of it at a profit, and the cash was in my bank account the next day.

But the point i would emphasise is this. If you are buying gold to hedge against a currency collapse you need to do some math. Suppose the value of sterling falls dramatically (OK, it's already fallen dramatically) - but let's assume a loaf of bread goes up this year from £1.15 to £1.30, and up to £5.00 next year, then £50, then £500. Don't laugh - the way Mervyn King is printing it could happen simply because people lose confidence in paper money. Suppose you bought £20,000 worth of gold now. That gold could be worth £86,000 when the dust settles - and away goes a big chunk of that in tax.

If hyperinflation does hit us then most of us with assets are going to lose most of our wealth in tax, unless we have been very careful indeed.

Before investing in precios metals EFTS we should all read the small print to see whether they have full physical backing and not just derivatives and futures. If it turns out that they are not they will trade at a big discount

This chart is by value in USD not weight. The chart would be a lot flatter if it were in weight.

Thanks Truffle Hunter.

The only real downside of this scheme is that if really caught on and became popular in Britain, in a very tight financial situation the Government might once again make the holding of gold illegal.

Since this ETR is virtual gold it would be sorely tempting for the Treasury to 'nationalise' everyone's holdings.

Zaydec is probably buying bars and burying them in his garden, better still would be to buy Sovereigns instead, after all they are CGT free.

Sovereigns are at a greater premium to the metal price and most of the other products on the market such as Krugerrands, possibly this is because of the CGT factor.

Stormdog - oh bother, you have guessed my cunning ploy to avoid tax (sovs), and yes that's why they are so highly priced. Too high for me at the moment.

BTW I don't think hyperinflation hits us yet. I agree with Hugh Hendry: high CPI numbers don't yet translate into wage growth; no high inflation without wage inflation; hyperinflation is a political choice; current mood is dark making bailouts and money printing very hard; the only environment that makes hyperinflation possible is a great depression; if you believe in hyperinflation, then you should buy 10 and 30-year Treasuries because in order for hyperinflation to come deflation must come first.

Yes. Agree with all that. But it's going to be very hard to navigate the interval between deflation and inflation. Very hard indeed.

I would not buy any ETF unless it is guaranteed to buy the actual gold and store it for you. It won't be too long before most of the so called physical ETFs are proven to be a scam, they do not buy any gold and then they charge for storage, what a shower of shysters.

There are a couple of good good guys out there, Sprott is one, another is Goldmoney (James Turk). Follow these guys and you won't go far wrong.

If I was a gold bug, I might be a bit worried that, over the past month or two, the price of gold seems to have behaved more like another element of the short-term risk on/risk off trade than in its traditional role as a hedging asset, suggesting that the market may have been invaded by the wrong sort of investor.

Thanks to you all - I think I'll go and buy shares in Randgold Resources instead . . . .

Mind your own Business.

Perhaps it is a good moment to draw attention to GATA -Google it - to anyone contemplating an investment in gold's financial derivatives.

I love to read the comments after articles like this, but it's mostly for my own amusement. Reminds me just how shortsighted many investors are, and just how silly their complaints are later on when they find they've been cheated.

If you are investing in an ETF, please ask yourself these 2 questions:

(1) When the price of gold drops, supposedly causing ETF's to sell gold, do you really believe some gold goes somewhere? Is no one else buying it, or is it just being buried in the back forty? Where do you suppose the many trucks carrying the gold take it to? With central banks (China) and investors gobbling up every ounce they can find, where do you suppose that gold would go? Does anyone ever notice the caravans of gold going back and forth every day into HSBC vaults, or JP Morgan vaults? No one has ever seen such caravans, and there is a reason.

Question (2). When the price of gold goes up, causing ETFs to 'buy' gold, where in the world do you suppose an ETF will get 1 million or 2 million or 20 million ounces overnight? Do you think that kind of gold is just sitting around waiting on some investors to make a move? Do you really believe that kind of gold is available just because ten thousand investors overnight decided to buy a few shares? Do you think central banks (China) and investors just cough 10 or 20 million ounces at a moment's notice to satisfy the ETFs? Is that really what you believe? Try to imagine all that physical gold coming and going.

The answer to both questions is: There is no physical gold being sold or bought. What is being sold or bought are entries on a ledger. It's all on paper, Lads. They don't have to have your gold because, in most ETFs, you don't legally own any gold.

Read the prospectus carefully, and you will find that most ETFs say in black and white you have NO CLAIM TO ANY GOLD. What you've bought and sold in your account is a bet on a direction of a commodity. You don't have any gold, Lads, you have a piece of paper that says you will be paid off in pieces of paper. Meanwhile, take a look at MF Global in the U-S and see whether or not the big players are playing with their money or yours. Do you believe MF Global is the only cheater in the field? If you don't hold physical metal, you don't own gold. Says so right there in black and white. If you are too lazy to look it up for yourself, see the voluminous research at GATA.org on the subject, including the many, many studies of ETFs rules and regs, which show definitely you don't own a thing except a piece of paper with some writing on it. And take that second look at MF Global and the indications under glass right now of commingling client money with company money. If you don't hold gold, you don't own gold. That's why gold is the guarantee -- not the promise, not the allocation, not the paper with your name and some numbers on it.

Chris, unfortunately the tortured language of the prospecti are far from amusing; unlike,as you say, the amusing misinformation that surfaces from various commentators. from time to time.

I have just noticed that Personal Assets Trust had the following to say:

"During the period the Company converted its holding in Gold Bullion Securities to physical gold bullion".

Institutions are losing faith in the paper gold of the ETFs.

I am sure there are others ... Soros sold his GLD ETF but used the money to increase his holdings in Eldorado Gold, Gold Corp etc.

Golden Paper is pretty but it will not protect your wealth.

Chris,

Thanks for again drawing people's attention GATA.

What you say is correct.

Seems to me that in essence ETFs are really no different gambling receipts from bookies.

The two horses in the race are the price of gold, it goes up or it goes down.

Just like the race course, when you place a winning bet you do not then own any part of the horse itself.

Buy physical sovereigns then, no CGT.

Chris McD, I am sure there is much in this, and I doubt most other conspiracy theories. If gold shoots up, way past the 1920 it was at recently (now 1756), and a substantial number asked for their cash, is it bound to fail, ie a Ponsi scheme? If so, with so much publicity, why are there not more official warnings, and auditing by FSA / Securities Commission?

Or is it that they are gambling the money on 'higher' return investments, like Italian Debts with ever increasing rates of Interest?

There sure is a Counter Party risk if you do not have it buried in your backyard.

I bet lots never gets found when the owner dies but did not trust anyone to tell them ..........