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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory
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To: ild who wrote (52160)1/31/2006 5:36:43 PM
From: aknahow  Read Replies (2) of 110194
 
Not sure we are in disagreement. First I don't consider the capture of premiums by participating broker/dealers to be arbitrage. There is no risk for them. They are guaranteed to get shares a zero or no premium by delivering gold. Thus even the small margin provides opportunity for doing business gains, not needing to make any arbitrage bet.

Given the small premium involved I doubt there are any NON participant players trying to arbitrage GLD with physical gold.

I have not addressed who is buying GLD ETF shares. I don't know, who the buyers are. It could well be funds that are diversifying into gold by holding GLD shares.

The participant broker/dealers need have no view on gold to make more by delivering gold to get shares. They are not the ones interested in owning or holding the shares received. In fact it seems obvious that their purchases are made to cover GLD shares already sold short. Sold short not because any decline in GLD shares is expected but because the participant broker/dealers are able to deliver gold to get shares with no premium, i.e. below what they sold them for.

If anyone wishes to believe that true arbitrage is involved when the difference between shares and physical gold is on 9 t0 10 basis points, they are free to do so.

For me it is just a contractual method of assuring a small profit to those who contracted participants who deliver gold for shares.
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