MIKE

Posts Tagged ‘Exchange Traded Funds’

by Michael Maloney
December 19, 2011
WealthCycles.com

Just last week we wrote about the dangers that MF Global revealed in the global banking system. The basic idea is that MF Global and probably every other Wall Street bank is gambling with their clients’ wealth. What’s clearly a fact is that these firms’ fiduciary responsibility is to themselves and their shareholders—it’s their clients that are the ones being taken out back for slaughter.

A Barron’s article today, published in Yahoo! Finance, proves many of those clients’ worst fears—that lost assets including cash, stocks, commodities, futures, and gold and silver will be commingled by MF Global’s trustee, and losses will be shared amongst all of MF Global’s creditors. But the holders of gold and silver had warehouse receipts identifying individual bars and coins that the clients believed were theirs. These clients, of course, assumed that their metals were safe and sound in the custody of MF Global, but as we have talked about before, when a bank goes under, anyone storing metals becomes an unsecured creditor—and in that case you are at the whim of the bank—or more accurately the bank’s bankruptcy trustee.

When we wrote this in July of 2010, many thought we were crazy. Ownership is ownership, they claimed, and it didn’t matter if you owned gold in ETF format, pooled account, or with a bullion bank.

Just as when you deposit your currency at a bank, the bank doesn’t keep your dollars separate from everyone else’s dollars; the bank simply tells you in your bank statements how much it owes you. But, legally, when you buy into a gold pool or certificate program, the bank becomes the owner of the gold.

If the bank gets into financial trouble (gasp!) it can sell your gold to maintain its assets at a level where it won’t get shut down and where it will avoid a run on the bank. In that instance, you won’t be paid back in gold, but rather in currency—less currency than the value of the gold the bank owed you—because logically a bank in trouble almost certainly would be forced to sell assets at fire-sale prices. If you live in a country with some kind of bank deposit protection (such as the Federal Deposit Insurance Corporation in the United States or Financial Services Compensation Scheme in the U.K.), your gold will not be covered. That’s because deposit insurance only applies to currency—meaning that, in the event of a bank crash, currency deposits are safer than unallocated gold.

When we first heard the story of Jason Fane of Ithaca, NY, having his precious metals held from transfer by the bankruptcy trustee, we smelled something fishy, and assumed that something more sinister was going on.

Today’s Barron’s article proves exactly those fears—that precious metals owners who seemingly owned their metals outright will actually lose a portion of the value of their precious metals. Barron’s says this:

That has investors fuming. “Warehouse receipts, like gold bars, are our property, 100%,” contends John Roe, a partner in BTR Trading, a Chicago futures-trading firm. He personally lost several hundred thousand dollars in investments via MF Global; his clients lost even more. “We are a unique class, and instead, the trustee is doing a radical redistribution of property,” he says.

But a redistribution of property is exactly what is planned—with “owners” of precious metals held by the former-MF Global being forced to take a 28% haircut on the value of their metals. But it gets worse:

So the big secret is out in the open now—and maybe, people won’t think we are crazy any more. As Mike Maloney has said for years: “If you can’t hold it, you don’t own it.”

Read the entire article HERE.

By Frank Tang and Aaron Pressman
Mon May 16, 2011 7:31pm EDT
REUTERS

Famed gold bull John Paulson held his ground, but Soros was joined in the retreat by several other big names, including

Eric Mindich and Paul Touradji, according to 13-F filings with the U.S. Securities and Exchange Commission that provide the best insight into where hedge funds are placing their bets.

Soros, who has been bullish on gold in the past several years, cut his holdings in the SPDR Gold Trust (GLD.P) to just $6.9 million by the end of first quarter, compared with $655 million in December, becoming the most high-profile investors to turn his back on one of the market’s best-performing assets.

He also liquidated a 5 million share stake in the iShares Gold Trust (IAU.P), the filings showed. His total holdings in gold-backed ETFs was $774 million as of December.

Gold rose for a tenth consecutive quarter in the three months to March, hitting record highs above $1,400 an ounce, buoyed by political turmoil in the Middle East and North Africa and lingering worries about indebted European countries.

The gains accelerated in April, but peaked at the start of this month, reaching a record $1,575 an ounce on May 2.

Prices have since fallen more than 5 percent amid the biggest commodities slump since late 2008, a move partly triggered by a Wall Street Journal report that Soros’ $28 billion fund was selling precious metals — and felling fears other big funds were also seeing a peak.

Eric Mindich, who runs the Eton Park Capital Management, nearly halved his stake in the SPDR gold trust to $326 million for the first quarter, a filing showed on Monday.

Mindich’s fund also owned $839 million worth of call options by the end of first quarter, compared with $1.1 billion worth of put options at the end of the fourth quarter.

Touradji Capital Management, one of the world’s largest commodities-oriented hedge funds run by Paul Touradji sold 173,000 shares in the SPDR Gold Trust during the quarter. Those shares would be worth about $25 million at current prices.

But John Paulson, who notched the industry’s biggest ever payout last year, kept his 31.5 million share or $4.4 billion stake in the SPDR fund, remaining the biggest shareholder of the world’s largest gold-backed exchange traded fund for the quarter, according to regulatory filings.

DEFLATION THREAT RECEDES

The sales make sense given that Soros said he had bought gold because he was worried about deflation, said Mark Luschini, chief investment strategist at Janney Montgomery Scott in Pittsburgh.

“It’s pretty hard to make the case for deflation right now so if that was a reason you were buying gold, you should take this signal from Soros,” he said.

Inflation is now the greater concern, Luschini said. So most investors should still keep about 3 percent to 5 percent of their assets in gold to protect against inflation and possible further problems in the world financial system.

Soros also slashed stakes in gold and silver mining companies during the first quarter. The firm owned 1.4 million shares of Kinross Gold (K.TO) at the end of the quarter, down from 4 million shares three months earlier. Holdings in Novagold Resources (NG.TO) dropped to 3.5 million shares from 12.9 million.

Gold ended the first quarter little changed, as the spot gold prices were only $10 higher to end at $1,430 an ounce on March 31, and the SPDR Gold Trust was up 1.3 percent.

In the second quarter, gold hit a record high $1,575.79 an ounce on May 2 fueled by the outlook of low U.S. interest rates.

So far in the second quarter, SPDR Gold Trust’s bullion holdings gained only about 1 percent to 1,229 tonnes as of Friday, well below its record high at 1,320.436 tonnes set on June 29 last year.

Institutional investment managers are required to file form 13-F with the SEC within 45 days after the end of each quarter.

Read the entire article HERE.

I thought this guy didn’t believe in precious metals:

by Robert Lenzner
Forbes
May. 4 2011 – 10:54 am

George Soros apparently thinks the gold bubble reached its peak in April. The multibillionaire hedge fund manager sold his large holding in GLD, the gold ETF in April as the price spiked to the $1550 an ounce level. Soros’ liquidation could well mark the peak for gold since other hedge funds and traders who followed him into the gold trade, could decide to sell before QE2, the Fed’s $600 billion program of quantitative easing is over.

If true, it means that Soros; gold position, first accumulated in 2008 when gold was in the $850-900 an ounce range, made him and his investors a return of at least 60-70% over almost 3 years. Other gold investors believe that continued weakness in the dollar will attract more gold investors like the central banks of China, Russia and India, who see the precious metal as an alternative to paper currency.

To be fair, the Soros gold sales have not been officially confirmed by his office- but have been reported by the WSJ and Bloomberg TV. Other hedge fund managers, who have large positions in GLD include John Paulson, who it is reported, has been suggesting gold could go much higher than $1500 an ounce due to weakness in the dollar. Other large gold investors include Tom Kaplan, who owns a major position in Novagold(NG), a Canadian company, Frank Giustra, a Canadian mining entrepreneur, The University of Texas pension fund and many others such as US Global Investors, a mutual fund company in San Antonio, Texas.

GLD, which became the globe’s 7th largest holder of gold, hit a peak of $60 billion in assets during April.

Gold has been declining in price to t he $1530 mark just as silver continues a much sharper decline- 3.69% so far today and about 25% in the past week- in the wake of margin requirements being severely hiked. Forbes predicted at least a 10% sell- off in gold and silver last week.

Read the entire article HERE.