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Strategies & Market Trends : Natural Resource Stocks

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From: The Vet	12/9/2004 9:52:26 PM
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I really never thought I would have to post about GLD here but apparently the garbage that passes as "fact" about the ETF is so widespread that the old adage "If you throw enough mud then some is sure to stick" is being applied in full force. I am not an apologist or promoter for GLD. I don't own any and I have no immediate plans to do so, but it offends me to see the obvious rubbish that is being offered as "information" about the product. For some reason all this "GLD is a SHAM or GLD is a SCAM " talk comes from people who are too lazy or think they are too smart to bother reading the prospectus! Here is a repost from Kitco where the same garbage is being recycled by a few posters. At least a few of the clearer thinkers over there have it right... trotsky has it right... "the gold ETF works like ANY OTHER ETF. an issuer deposits gold backing 100,000 shares with the trustee, and then gets to issue those shares. only authorized participants can create or redeem a GLD share basket." So let's get it clear. Murphy, his cronies and most of the press are just talking rubbish! There are many agendas being pushed, but the common theme is to "bag" GLD. A few facts... Any dissenters please post a CLEAR DESCRIPTION of the reason for your objection and quote the relevant quote from the GLD prospectus to support your view. 1. GLD DOES NOT BUY GOLD ! 2. GLD DOES NOT SELL GOLD! 3. GLD HAS NO NAV in the same sense as a closed end fund which has no deposit/redemption system. 4. Authorized participants buy gold, deposit it to GLD's account with the custodian and in return GLD issues the authorized participant one GLD share for each 1/10 ounce deposited. 5. Authorized participants can return shares to GLD for redemption. For each 100k shares GLD receives and cancels it gives back 10k ounces of gold. It is up to the Authorised participant ( or his customer ) to decide what he wants to do with that gold. The gold backing the shares never changes. It remains at 1/10 ounce per share issued. There is no limit to the number that can be issued but all shares issued can be redeemed in the defined parcel size at any time. If GLD announces that their gold holdings have dropped by 500k ounces it simply means somebody has redeemed 5 million shares for physical. It does not imply a sale. In fact I believe that GLD shares will be used at some time for large buyers to accumulate gold while keeping their identity secret. From time to time they will redeem those shares for physical. Of course the shorts are using these events to create panic in the press and on places like Kitco because many seem not to understand the mechanism and the shorts are playing on that ignorance.

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