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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: ild who wrote (52231)	2/1/2006 12:39:15 PM
From: aknahow	Respond to of 110194

All I am saying is that the participant broker/dealers have a contractual arrangement with State Street that enables them to both deliver physical gold for new shares or redeem previously issued shares for physical gold. You and I nor any other non participant can not obtain new shares. If we want them we must buy them in the market. Riskless arbitrage is considered riskless because the shares of the stocks held and the ETF that holds them are in effect one and the same. I get this but contractual arrangements are even one step removed from "riskless" arbitrage. I use the quotes sine the risk does exist and that risk is, that immediate convergence is not guaranteed. For participants broker/dealers of GLD there is no risk at all as the convergence takes place when the new shares are issued regardless of any changes in the pog or price of the GLD ETF. Could not link directly to the page you linked but went to investorwords and the definition for riskless arbitrage stated that the same asset was being bought and sold at a higher price at the same time. Physical gold and the GLD ETF are not the same identical asset. But seriously you can consider it anything you want. I guess I am stuck on stupid in believing one can more clearly understand the GLD ETF if one describes how it works as precisely as possible. When one describes the price action as being influenced by arbitrage IMO one starts down a slippery slope. GLD shares change in price due to a change in the pog. The contractual arrangement with participant broker dealers keeps the premium discount low. GLD makes no decisions on what the asset physical gold is going to do and in fact for this specific contractual operation participant dealers don't care either. Not saying you ever implied that GLD makes any decisions on the future pog, just incorporating a conception some have that GLD is buying gold, when actually it is only passively receiving and delivering gold in response to the actions of others. BTW I think there will be delivery of gold today, FEB 1 to GLD for new shares based on yesterdays premium of 16 b.p.