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Gold/Mining/Energy : Gold & Gold Stock Analysis -- Ignore unavailable to you. Want to Upgrade?

To: The Vet who wrote (4673)	12/13/2006 8:13:39 PM
From: aknahow	Respond to of 29622

"... once the GLD price got lower than the spot metal, the authorised participants would start selling metal short and buying shares until they had gathered together a full parcel of shares for redemption to cover the metal short." Good point, in order to be riskless the metal must be sold short at the same time the shares are being purchased. So as a reminder, to myself, one will see impact on volume both when physical metal is sold or bought. "This would be a fairly safe trade because if the market turned during the process they can buy back the short position in physical metal (maybe at a small loss) but they would more than make it up in profit on the GLD stock." Probably done at the exact same time and riskless, but you may be right if it not. "The interesting thing about this is that for the big players who are authorised participants, their own actions (equal and opposite) in each market (spot and GLD stock) is a natural no cost hedge. To clarify, I mean that when they are buying GLD stock they are selling spot gold and when they are selling GLD they are buying metal and making a small but almost riskless profit in both cases. Effectively the share trading public pays this profit through the spread on GLD shares, but it's a very small price for the convenience and far less than the spreads and charges on the spot market." Agree 100% Now a rambling thought. If I know I am going to buy x tons of gold in my GLD related book of business why would I not buy some GLD shares prior to the physical metal purchase? I am shorting shares to make for arbitrage sure profit with one hand and buying extra shares, taking some risk but knowing I am going to be buying physical and if physical rises GLD shares will rise. Look at the "extra" volume, not excessive but above the "normal" activity, prior to the volume spike. Probably legal, not a lawyer. My pre purchases would help my future other book shorts get executed at a higer price and my purchase of physical would help the price of the extra shares I bought, not received from the ETF."I can even conceive of real share purchases shortly after the purchase of physical if the share market lags in responding.