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

To: Wade who wrote (12151)	2/23/2008 5:41:43 PM
From: The Vet	Read Replies (1) \| Respond to of 29622

Then, they can use it to play gold futures Not only that, but long GLD positions can be used for margin equity on COMEX. COMEX accepts this as the equivalent of real gold at the nominal 1/10 ounce per share (less deducted expenses). However as the short position increases, each GLD share held is backed by much less than the quoted amount due to the share dilution effect of the shares sold short. It leads me to a curious conclusion. If for some reason a significant number of shareholders in GLD tried to bail out, it would be possible for the APs collectively, to buy from the market, and attempt to redeem, more GLD shares than had been issued by GLD and for which there was backing of gold metal in the vault.. My guess is in that event, the APs, seeing that they faced a huge loss would be forced to stop buying GLD stock and the share price would plummet to way below the spot gold equivalent price (quite quickly to zero) leaving the short sellers with massive profits, the APs with big losses, and all remaining long shareholders with valueless GLD stock! The classic "run on the bank" all done electronically and it could play out in a matter of minutes. It is a huge risk legally permitted and condoned by the SEC and the exchanges who allow unlimited short selling of these ETF products and all other stocks. In other stocks the damage can be just a severe, but with GLD, SLV or other materialy backed ETF it would be immediately quantifiable and obvious the moment the GLD stock traded much below fair value when compared to spot metal prices. The trigger would be instant and the crash completed in seconds as soon as the market longs realised that all remaining GLD shares held in their accounts were worthless. Spot gold would almost certainly drop suddenly and then go back up strongly once everyone realised what had happened!