No. of Recommendations: 43
There has been quite the interesting bits of news released over the last year or so about the nefarious activities of HSBC bank. Matt Taibbi's article once listed 5 major "revelations":

1. By HSBC’s December settlement, the bank had already received two cease-and-desist letters.
2. HSBC covered its tracks when helping oppressive regimes avoid sanctions
3. HSBC ran offshore branches designed specifically for money laundering
4. HSBC did direct business with “the worst trafficking organizations imaginable.”
5. An entire HSBC department was tasked with quickly clearing suspicious behavior
http://www.alternet.org/news-amp-politics/5-outrageous-revel...

So why am I rehashing this now several months old news?

Well, I've taken upon myself the boring task of re-reading the prospectus for GLD.
http://www.spdrgoldshares.com/media/GLD/file/SPDRGoldTrustPr...

I find many instances where a suspicious mind might read a passage as being a loophole for a less than absolutely honest principal. But I find that since the Custodian for the GLD gold is HSBC, I find the following section on page 11 especially foreboding:

The Custodian is required under the Allocated Bullion Account Agreement to use reasonable care in appointing its subcustodians but otherwise has no other responsibility in relation to the subcustodians
appointed by it. These subcustodians may in turn appoint further subcustodians, but the Custodian is not responsible for the appointment of these further subcustodians. The Custodian does not undertake to monitor the performance by subcustodians of their custody functions or their selection of further subcustodians. The Trustee does not undertake to monitor the performance of any subcustodian. Furthermore, the Trustee may have no right to visit the premises of any subcustodian for the purposes of examining the Trust’s gold bars or any records maintained by the subcustodian, and no subcustodian will be obligated to cooperate in any review the Trustee may wish to conduct of the facilities, procedures, records or creditworthiness of such subcustodian.


Now I'm sure that a custodian with HSBC's proven history of, shall we say, extraordinary behavior will exercise the utmost caution to ensure that all things will end well.

The question to this cynic's mind is "for whom?"

Warm fuzzies seemed to be to what just about everyone owning GLD and who hasn't read the prospectus should not be experiencing. For those who do use GLD as a proxy for owning gold, first you should read the whole propsectus from the first page and do so with an eye to how an unscrupulous Custodian might interpret the wording to their benefit and not yours.

For example on page 7 the following is instructive:

Shareholders do not have the protections associated with ownership of shares in an investment company registered under the Investment Company Act of 1940 or the protections afforded by the
CEA.


The Trust is not registered as an investment company under the Investment Company Act of 1940 and is not required to register under such act. Consequently, Shareholders do not have the regulatory protections provided to investors in investment companies. The Trust will not hold or trade in commodity futures contracts regulated by the CEA, as administered by the Commodity Futures Trading Commission, or CFTC.
Furthermore, the Trust is not a commodity pool for purposes of the CEA, and none of the Sponsor, the Trustee or the Marketing Agent is subject to regulation by the CFTC as a commodity pool operator or a commodity
trading advisor in connection with the Shares. Consequently, Shareholders do not have the regulatory protections provided to investors in CEA-regulated instruments or commodity pools.


The bolding is in the original document and I copied freely from it because the prospectus is in the public domain and is to be provided to all who wish to purchase shares in GLD.

Anyway, some food for thought on the weekend.

Poz
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No. of Recommendations: 24
Poz, I find it very difficult to sort out the gold market. I am convinced that many gold bars have multiple owners. Each owner thinking he has clear title to the bar.

One of the more puzzling developments in the gold market was when Germany decided to take physical possession of their gold held at the New York Federal Reserve bank. You would think it could be done in one or two days. You send a few Brinks trucks over and load them up. For some reason, Germany said it was going to take many years to accomplish the transfer. Apple can ship a few gazillion Ieverythings from mainland China to the US every day. I bet if Ieverything delivery depended on getting that gold moved in one day, it would be done. Unless of course, the gold is not really there ready for immediate shipment.

I also recall in the MF Global fiasco that many investors held "allocated" gold in their accounts. Yet, they were not able to take possession after the bankruptcy. I do NOT know how that situation got resolved.

If you can sell each bar of gold, 2X or 3X or 10X, it would be easy to manipulate the market. It might be manipulation on the long side or the short side. Think of "naked shorting" 10X the physical gold.

If everybody in the world demanded immediate delivery of their physical gold, I suspect the price would rise substantially as the "naked shorts" come clean.

With the HSBC's of the world running funds like GLD, WHY WOULD WE EXPECT ANYTHING DIFFERENT? Their track record of ignoring rules and laws is impressive. Rules/laws are for the "little people" to paraphrase Leona Helmsley.


It might be that GLD is a good proxy for physical gold ad infinitem. OTOH, I would NOT be surprised in the least if it blew up in a crisis when we all learn it does NOT have the physical gold backing it claims.
No black swans here. . .

Thanks,

Yodaorange
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I've always wondered why GLD didn't oblige their custodian to ensure its rights (e.g. right to audit) propagates to subcustodians appointed.

Then again perhaps this angle is key:

As thus can be seen from its legal structure, the Trust does not have any legal safeguards in place to keep subcustodians from leasing out the GLD gold. As of the date of this prospectus, the subcustodians being used were: Bank of England, The Bank of Nova Scotia (ScotiaMocatta), Deutsche Bank AG, JPMorgan Chase Bank, and UBS AG (p. 47). Please note that all of these banks actively lease gold.

http://www.zerohedge.com/article/guest-post-got-gold-why-own...
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...the Trust does not have any legal safeguards in place to keep subcustodians from leasing out the GLD gold. As of the date of this prospectus... the subcustodians [banks]... actively lease gold.

SB,

Sometimes it's wise to actually read the prospectus before buying the paper representing commodities. Frankly, since "everyone knows" that banks make money using other people's money, is it so hard to believe that the selfsame banks are making money using other people's gold?

I think you just put your finger on why there is a disconnect between the price of paper gold and the price of physical bullion at the local dealer. It also takes a bit of the mystery out of why it's going to take some time for Germany to actually take possession of the gold it has stored at extra-territorial bullion facilities.

It's not necessarily a conspiracy, either. It's just a fact of how the paper trade is structured. I wouldn't be surprised to find that a similar scheme exists i/c/w other commodities, as well.

Thanks for the excerpt.

;-)
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No. of Recommendations: 5
Thank you, Poz!

I have always said: It's not YOUR gold until your own hand is warming it.

Wendy
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No. of Recommendations: 8
Wendy

I'm quite a cynic when it comes to the amount of money represented in the GLD and SLV vehicles in an age of too big to jail. That's why I've revisited the GLD prospectus. Whether one wants to "fondle" ones gold or own some other instrument where someone else holds the asset, the safety of the holding should never be in as much question as it is these days. We need a lot of work, but I'm afraid it will take a crisis more severe than 2008-9 to get through to the average citizen that the job of reform isn't done until the bill is simple, passed, enacted and funded.

A lot is made of thousand page bills. Well who made them that ungainly? In a word, the lobbyists and those who pay them to ensure that their particular gravy train continues in spite of outrage and uproar.

Poz
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Wendy

But is that really gold you are warming in your hand? How do I know the purity the certificates says my Krugerrands have is really true and just how close to an ounce are they (maybe they are even more than an ounce?).

Worry, worry.

brucedoe
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No, 1000 page bills primarily get that way to protect the jobs of those that write the bills. Congresspersons. Lobbyists can influence not just with money but by promising votes. Is the home mortgage interest deduction from federal taxes there because of the money of the greedy home builder/ realtor interests or the voting power of the equally greedy home owners? Some of both.

A tax loophole is a deduction that somebody else has, seldom one you have yourself.
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Bruce

But is that really gold you are warming in your hand? How do I know the purity the certificates says my Krugerrands have is really true and just how close to an ounce are they (maybe they are even more than an ounce?).

Someone has created a series of marvelously simple, ingenious devices that can offer some comfort that your Krugerrand is the correct diameter, weight and thickness. Thus probably the real McRand as it is pretty difficult to counterfeit the precious metal coins without throwing at least one of those dimensions out of proper proportion.

I have just about all the wallets, and have an email in to them to buy their new silver wallet as well.

You can either buy them directly from http://www.thefisch.com/

Or, if you're ever in the neighborhood, I'd be happy to take a few moments to run your coins through mine.

Poz
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No. of Recommendations: 3
No, 1000 page bills primarily get that way to protect the jobs of those that write the bills. Congresspersons.

You really believe that Congresspersons write their own bills? I've got this bridge......hardly used.....

Poz
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No. of Recommendations: 4
One of the more puzzling developments in the gold market was when Germany decided to take physical possession of their gold held at the New York Federal Reserve bank. You would think it could be done in one or two days. You send a few Brinks trucks over and load them up. For some reason, Germany [actually the USA] said it was going to take many years to accomplish the transfer.

That's because the gold isn't there.

And, Oh Gosh, there's suddenly a huge drop in the price of gold while Uncle Sam buys back enough gold to pay back the Germans.

Gosh, who'd a thunk it!
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You really believe that Congresspersons write their own bills? I've got this bridge......hardly used.....

Poz



Actually they absolutely don't, the hill staffers (or as RK calls them "Hill People") write the bills. Its actually a tough job as they are often put together on short notice needing to be debugged (remove contradictions from existing laws) and then last minute negotiations will require changes which of course also have to be debugged.

If there are international implications then treaty debugging is also necessary though often the foreign diplomats will be quite happy to point out the errors of their ways and perhaps even provide the new wording for them. }};-D

I have recently taken an interest in a few "bills" and laws as they relate to some of my investments. Bet y'all didn't know that East coast USians who import products from China by the fastest method (boat to Prince Rupert BC) followed by quick train connections to the east coast) pay a "fee" to maintain US ports?

http://blog.pcb.ca/2012/10/what-are-harbor-maintenance-fees-...

Of course since they are not actually using a US Port I suppose it would more correctly be called a tax? Some people might even suggest that it is a form of protectionism but y'all don't do stuff like that... do you?

Apparently US ports have not been all that well maintained and since most of them are in cities, expansion is really difficult.

More reading on the subject:

http://www.aapa-ports.org/Issues/USGovRelDetail.cfm?itemnumb...


Any <you want me to put that where!!!> mouse
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And, Oh Gosh, there's suddenly a huge drop in the price of gold while Uncle Sam buys back enough gold to pay back the Germans.



Ah shucks DD if that was true and the word got out then everyone would want their... gold... back...!!!!

Hmmmm come to think of it these people have never lacked for a desperate form of creativity.


Any <TECHNICALLY The glass is completely full> mouse
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You will be able to recommend 4 more posts today. (explain this)


I have always said: It's not YOUR gold until your own hand is warming it.

How very true, as the Germans are finding out now that they want their gold back from our federal government.

Desert (Got gold?) Dave
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Good point about who actually writes the bills. But staffers are hired and paid to protect the politician and to enhance his interests, not the interests of the electorate or the lobbyist. If they are deemed to be favoring lobbyists rather than the congressperson, they can be promptly fired.
Would that bridge you wanted to sell me be this one?
http://en.wikipedia.org/wiki/Ambassador_Bridge
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