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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory
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To: ild who wrote (48086)12/23/2005 5:24:18 PM
From: aknahow  Read Replies (1) of 110194
 
No, I don't think mutual funds are pushing the GLD premium up. I think any and all buying of shares from those more eager to own than those willing to sell results in the premium creeping up. When it reaches a predetermined range, participant broker/dealers who can obtain new shares by delivering physical gold, do so. I believe they do so because they do short the stock as the premium increases knowing that borrowed shares can be covered by new shares obtained at zero premium thru the delivery of physical gold.

The broker/dealer participants need not have any view on where the pog is going. They are in a position to earn money by capturing the premium.

I also believe that, at present, deliveries of gold, having a value, amounting to around $50,000,000 are used to capture the premium.

Since no view on the pog is needed the shorting and the covering probably occur almost at the same time.

So everyone benefits. The GLD ETF run by Statestreet wants the stock to trade close to the value of 1/10 of an oz. of gold. Market participants achieve that just by making a small but on going profit by shorting and covering with new shares.

The individual buyer of GLD shares benefits as the premium/discount ends up being a minimal amount.

Now knowing what and how is being done, I am interested in learning if this knowledge can be of use and how to make use of it.

At the present the fact that I "know" when physical gold will be delivered into GLD to the tune of around 3 tons is interesting, to me <g> but not of great use, or any use, in fact. <gg>
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