Thursday, March 26, 2009
One of the most commonly heard "theories" about how the world's most popular gold investment product - the SPDR Gold Shares ETF (NYSEArca:GLD) - is defrauding investors is that the trust can't possibly contain the gold they say they have because there is no evidence of any transfers of this size on any gold market.
The logical conclusion, of course, is that the ETF is a sham.
All it takes is a simple phone call to completely debunk this "theory", something that, to my knowledge, no one has bothered to do until about an hour ago when I picked up the phone and began dialing after quickly locating the contact page at the GLD website.
Anyone wanting to cast doubt on the quantity and/or quality of the bullion backing the gold ETF should start looking at HSBC (Hongkong and Shanghai Banking Corporation) instead of the Comex or any other gold market because that's where the gold transfers occur.
In a quite pleasant conversation with Natalie Dempster, Head of Investment in North America for the World Gold Council, it was learned that most of the purchases made by "authorized participants" on behalf of the trust result in gold being transferred from "unallocated" accounts to "allocated" accounts for the trust at HSBC in London.
Since these are internal transactions, records are not made public.
That's why no one can "see" where the gold is coming from.
As noted on many occasions before, it is my firm belief that if you really want to "own" gold, you should buy the stuff in physical form and then put it somewhere safe. Anything short of that - whatever you buy and from whomever you buy it - is a distant second to this option if your aim is to ensure that the stuff is really there.
Now, I have no idea whether HSBC is doing what they say they're doing or whether they are another Bernie Madoff outfit, filling out all the proper paperwork and putting smiles on their customers' faces until the day eventually comes when they are revealed to be another massive fraud.
Maybe someone should call HSBC and ask them for these records.
But, to simply say that the ETF can't have the gold they say they have because no one can see these transactions on any market, yet no one bothered to pick up the phone to ask the people who run the fund just why that might be .... well, that's about the sloppiest bit of logic and the worst financial writing I've come across lately.
[Note: For those of you haven't already seen it, there is a highly informative and recently expanded list of Frequently Asked Questions at the GLD website.]