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Thread: So, I'm Pretty Sure That GLD is in the Final Stages of a Ponzi Scheme

  1. #1

    So, I'm Pretty Sure That GLD is in the Final Stages of a Ponzi Scheme

    Ok, so from the 3rd quarter 2008 to the 3rd quarter 2009, gold increased from $900 to $1050, yet during the same time, demand for gold DECREASED 35%. This seems to be in direct contravention to the laws of supply and demand. This chart is telling:



    During this time, the demand from ETF's dropped 72%, a stunning amount, even as new investors continue to flock to the product. There is only one conclusion to draw from this. People are pumping dollars into the bullion ETFs to take advantage of the uptrend in PM's, but those dollars aren't being passed on to owners of actual bullion. As the number of shares of GLD issued is increasing, they are buying less and less actual gold. The recent sell off in gold has not been fully reflected in physical prices, as premiums have skyrocketed $42 in the past month.

    This points to a rather nasty conclusion. GLD is using money from new investors to pay off those cashing out of the fund rather than making new purchases of bullion. Thinking back, it makes sense. Remember, GLD charges ridiculously low fees, only 0.4%, all of which goes toward management, spending no money on storage. This is often a feature of Ponzi schemes, as they take their profits from the principle rather than fees.

    The really innovative part of this is that they don't have to produce the extraordinary returns that are normally featured in Ponzi schemes, but rather have the incentive of being an "easy" way to get exposure to a rapidly appreciating commodity. Another feature is that they make redemptions especially difficult. You have to cash out something like twenty million dollars worth of bullion in order to take physical delivery. Those few who cashed out of the fund could have easily been paid out with funds from newer investors (rather than funds obtained from selling gold on the open market).

    Another feature common to Ponzi schemes is secrecy, and GLD has that in spades. Generally, the secrecy relates to how the investments are made, with a somewhat vague, jargon filled description being all that is given. In this case, they claim to be purchasing and storing gold (somehow for almost free), but the system by which they do so is complex and secretive. Complexity breeds high costs, but in this case, they manage to do it for only 0.4%, including administrative costs.

    This is going to end in tears for a lot of people.



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  3. #2
    Wow, that is cool how they found out demand 1000 years in the future.

    Oh and good post!
    Last edited by Original_Intent; 12-16-2009 at 10:04 PM.
    "The journalist is one who separates the wheat from the chaff, and then prints the chaff." - Adlai Stevenson

    “I tell you that virtue does not come from money: but from virtue comes money and all other good things to man, both to the individual and to the state.” - Socrates

  4. #3
    Quote Originally Posted by Original_Intent View Post
    Wow, that is cool how they found out demand 1000 years in the future.

    Oh and good post!
    That's a Q, not a 0.

  5. #4
    OH snap!
    "The journalist is one who separates the wheat from the chaff, and then prints the chaff." - Adlai Stevenson

    “I tell you that virtue does not come from money: but from virtue comes money and all other good things to man, both to the individual and to the state.” - Socrates

  6. #5
    hey tsmoley, aside from the post, is it true that GLD’s current holdings amount to nearly half of the world’s annual production?
    The finest virtue of a great thinker is the magnanimity with which, as a man of knowledge, he intrepidly, often with embarrassment, often with sublime mockery – offers himself and his life as a supreme sacrifice.

  7. #6
    As of November, they held 1117 metric tons of gold, while total world output of gold in 2007 was 2444 metric tons, so yes, you are about right.

    This is an interesting article I stumbled across while looking for a chart of their holdings froom the time they were founded: http://www.zealllc.com/2006/gldetf2.htm

    When gold went down, GLD inventories of bullion did not. This is indicative of one of two things. Either increase in demand for shares of GLD just happened to exactly match the decline in the price of gold, or they weren't selling their gold BECAUSE THEY DIDN'T HAVE ANY. I find it hard to believe that during that entire time, there was never a decrease in gold price that wasn't matched with an increase in demand for GLD shares to the point that they NEVER ONCE had to sell a single ingot of gold.

    I'd like to get a similar chart that goes all the way to now.

  8. #7
    Even after four years, there were hardly ever any redemptions. From the chart in the following article, it looks like less than a hundred tons was ever sold (the approximate amount that GLD started with).

    http://seekingalpha.com/article/1062...four-years-out

    It is for mainstreamers not well-versed in gold.
    Feature of Ponzi schemes.

    Not only is multiplying its initial holdings by 94.3x as of mid-October utterly remarkable, but the way these gold holdings have grown is fascinating. They have been far more stable than even GLD’s most optimistic proponents, including me, originally expected at launch.
    Feature of Ponzi schemes.

    Over its entire lifespan, GLD’s daily correlation r-square with gold has run a staggering 99.98%! And yes, this is the r-square and not the raw correlation coefficient itself. It simply could not be any higher. From a stock trader’s perspective, for all intents and purposes GLD’s performance was identical to gold’s. It has fulfilled its mission of tracking gold’s movements perfectly. GLD is a great trading proxy for gold itself.
    This is too good to be true. No ETF tracks that well. This is almost guaranteed to be due to number fudging.

    An article with numbers from the last year:http://www.zealllc.com/2009/newgold.htm

    Other than a brief period in early September when GLD’s holdings fell, stock investors have generally wanted to own this ETF to add gold exposure to their own portfolios. This has led to such massive GLD growth in a short period of time that I’m sure it wildly exceeded the expectations of even GLD’s biggest fans. Generally stock investors were buying GLD at a much faster rate than gold itself was being bought.
    Too good to be true. Data from the last year seems to show that the managers of GLD must be psychic, because they don't buy more bullion whenever the price goes up if it is followed soon after by a fall such that they stay near the same price on average. How could they know not to buy, or not to sell!? Their bullion holdings look more like a bloody 1 month moving average than something being consciously controlled by managers.

    Christ, this is driving me nuts. Someone look over all this and tell me if I'm crazy. I need to get to bed.

  9. #8
    They might be doing exactly what they did to oil. I am enjoying the fruits of that last scheme. I really enjoy sitting around the house with no work due to depressed oil prices.



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  11. #9
    Arklatex
    Member

    I've often been suspect at how well GLD tracks the gold price. Take a look at another physical gold and silver fund CEF, it tracks very loosely over short periods of time selling at varying premiums throughout the day, while GLD is never off a hitch, ever!
    Last edited by Arklatex; 12-16-2009 at 11:52 PM.

  12. #10
    Will this affect SLV in the short term and/or long term?
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  13. #11
    I think if GLD is ever exposed as a Ponzi scheme, then SLV is going to be hugely affected whether it did the same practices or not. I honestly don't see how there couldn't be a ripple effect possibly into other commodity based ETFs as well - it seems like it would really cause people to doubt everything paper.
    "The journalist is one who separates the wheat from the chaff, and then prints the chaff." - Adlai Stevenson

    “I tell you that virtue does not come from money: but from virtue comes money and all other good things to man, both to the individual and to the state.” - Socrates

  14. #12
    Quote Originally Posted by Arklatex View Post
    I've often been suspect at how well GLD tracks the gold price. Take a look at another physical gold and silver fund CEF, it tracks very loosely over short periods of time selling at varying premiums throughout the day, while GLD is never off a hitch, ever!
    Compare the difference in volume, 1 million shares compared to 20 million. There's your answer.

  15. #13
    Tmosley, I'm not at all questioning the accuracy of the chart you posted above, however I would like to see the original source.

    From what I'm finding, GLD had 700 tonnes of gold in 3Q 2008 and 1120 tonnes of gold today.

    Interesting indeed. Stay on this!

  16. #14
    Jordan,

    That would be fne, except that GLD tracked perfectly, even when it was first getting started! Remember, they didn't start as the largest, they have just gotten that way because of their "perfection"!

    I listed all of my sources in my posts (except for the first one, here's the source on that:http://seekingalpha.com/article/1782...om-here-part-2). I'm not sure where they got their data from, but it all seems to be in agreement. It probably comes from GLD itself.

  17. #15
    http://zealllc.com/2009/gldcons.htm

    Tmosley, I'm not at all questioning the accuracy of the chart you posted above, however I would like to see the original source.
    From what I'm finding, GLD had 700 tonnes of gold in 3Q 2008 and 1120 tonnes of gold today.
    Yep, you can look it up, read the audits. Of course you can choose not to believe them, but until proven otherwise you are relying on an utterly un-falsifiable "gut feeling" in lieu of actual evidence...

  18. #16
    So when do you suspect this will be discovered? When the gold price decreases alot and rapidly? That could be years from now. And due to the fact that gold is such a small market, GLD itself pulls money away from the gold market preventing bubble mania to form. Anyways, like the way you think Tmosley



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  20. #17
    not to mention Tungsten bars ...
    We'll know our disinformation program is complete when everything the American public believes is false. -- William Casey, CIA Director

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  21. #18
    When will it be discovered? When whatever amount of gold they may have had at one point is gone, and GLD stops tracking the downtrends in gold. Soon after, it will likely enter a bubble mania stage as momentum traders get in on it, and then it will suddenly come crashing down one day, when there is no longer enough money to pay off profit takers (since the money isn't actually invested in gold, but rather it was used to pay off those cashing out earlier).

    Sure, there isn't any real evidence, but there is rarely any evidence available to the open public in such schemes. But this case is slightly different, in that GLD has gotten so HUGE that it dominates the market. As such, it's movements are more easily trackable. This means that the amount of gold that GLD is buying should correlate with a price change. But it DOESN'T. If that is the case, then there are two possible conclusions. 1. They are getting their gold from some central bank somewhere off the books (unlikely), or 2. they aren't buying gold at all!

    As for you, Dforkus, I'm not relying on anything like a gut feeling. I'm looking at the evidence. GLD is too good to be true. They manage to track gold perfectly, which is impossible. Anyone who has ever invested with ETF's knows this. They charge practically nothing for storage of vast amounts of bullion. Their bullion inventories only track definitive moves, but don't track them when the price comes back down soon after (HOW CAN THEY KNOW!?). They manage to make huge increases in inventory without affecting the price of gold (you try acquiring 100 tons of gold and see if you can keep the price from rising more than five cents).

    Provide me with a link to the audit data and I will look it over and see what I can find. I strongly suspect fraud. There is a major shorting opportunity here. This makes me wonder about the bullion banks that support GLD and COMEX, with their huge short positions...

  22. #19

  23. #20
    Arklatex
    Member

    Funny, today SLV is under $17 yet silver spot is $17.21

  24. #21
    Interesting. If you could come up with some demand numbers and a chart of SLV holdings since inception compared to silver price, we could do a similar analysis.

  25. #22
    Quote Originally Posted by Arklatex View Post
    Funny, today SLV is under $17 yet silver spot is $17.21

    Neither SLV nor GLD represent 1 ounce and .1 ounce of silver or gold. Annual fees come out of their metal "holdings"

  26. #23
    One of the reasons that GLD and SLV track so well has much to do with the number of parties that buy/sell the ETFs. See, if GLD ran to $110 while gold was at $1080, you could sell GLD and buy gold, arbitraging a $20 profit until the spread is lower. There are probably numerous investment banks doing this for spreads much lower than 1-2%.

  27. #24
    Quote Originally Posted by Jordan View Post
    One of the reasons that GLD and SLV track so well has much to do with the number of parties that buy/sell the ETFs. See, if GLD ran to $110 while gold was at $1080, you could sell GLD and buy gold, arbitraging a $20 profit until the spread is lower. There are probably numerous investment banks doing this for spreads much lower than 1-2%.
    And where would they buy gold that the spread wasn't eaten up by premiums and fees?



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  29. #25
    Quote Originally Posted by Dforkus View Post
    http://zealllc.com/2009/gldcons.htm

    Yep, you can look it up, read the audits. Of course you can choose not to believe them, but until proven otherwise you are relying on an utterly un-falsifiable "gut feeling" in lieu of actual evidence...
    Jesus Christ! I find evidence that would support your theory, ask for a simple validation of the claim, and then you bash me.

    Easy killer, I want to get to the bottom of this just as much as you do.

  30. #26
    Quote Originally Posted by tmosley View Post
    And where would they buy gold that the spread wasn't eaten up by premiums and fees?
    Futures, spot metals, etc. They're aren't arbitraging with physical metals.

    I'm just suggesting that your point that the ETFs track so well is moot. Its a poor argument, one that can be undermined by the fundamental operations of any market.

    You're better off trying to get to the bottom of this with the fact that ETF demand has fallen by 33% while the largest ETF player in the world has increased their stocks by 50%.

  31. #27
    For the record:

    I do not think GLD is buying 100% physical metals. I am more keen to think they are buying derivatives and do have exposure to counterparty risk, much of it probably stemming from Barclay's Global which owned iShares until this summer.

  32. #28
    Quote Originally Posted by Jordan View Post
    Futures, spot metals, etc. They're aren't arbitraging with physical metals.

    I'm just suggesting that your point that the ETFs track so well is moot. Its a poor argument, one that can be undermined by the fundamental operations of any market.

    You're better off trying to get to the bottom of this with the fact that ETF demand has fallen by 33% while the largest ETF player in the world has increased their stocks by 50%.
    What do you mean, "spot metals"? I thought spot was a contract for immediate delivery, and that is why bullion brokers base their prices off of spot values.

    The point is that there are a lot of problems with GLD, the summation of which is that it appears to be a Ponzi scheme that is about to bust.

    Looking at GLD's website, they have pictures of their vault and they do have the latest audit report as well as weekly bar updates. I don't know what to make of that. It could easily be all lies, but then, maybe not. It could easily be that I am wrong. I don't know. I just know that I noticed a trend, and it may only be a recent and temporary one. Maybe it's cheaper and easier to store a thousand tons of gold than I think. But the more compelling story is that the bullion banks that have custody of that gold are also short huge positions, and would stand to profit in a big way if the gold turned out to be fake, as they could fill with worthless shares of GLD, according to the rules of the COMEX, amended in 2005. If they held the gold elsewhere, they would be able to sell it on the suddenly exploding physical market.

    Risk and fraud abound in our corrupt markets. Tread carefully. Shorting GLD may just be a smart move, if you think that any of this has any validity. I'm not going to, because I'm not 100% convinced either. I'm still in physical and miners, and will remain there for some time, unless some game changer comes down the pipe (Volcker being appointed FED chairman again might do it, but I can't think of much else).

  33. #29
    I shouldn't have used the word "spot," I was thinking that even as I clicked the quick reply.

    What I should have said were derivatives; counter-party risk. Derivatives do not come with heavy fees/premiums and are almost always conducted at the spot price.

  34. #30
    Quote Originally Posted by Jordan View Post
    I shouldn't have used the word "spot," I was thinking that even as I clicked the quick reply.

    What I should have said were derivatives; counter-party risk. Derivatives do not come with heavy fees/premiums and are almost always conducted at the spot price.
    I dunno. I think the whole point of GLD was for regular traders to get exposure to the gold price easily. If it is possible to get that elsewhere, GLD wouldn't have become so popular. This negates the idea of an ETF's price being self-regulating.

    This is obvious when you look at other ETF's, which don't get nearly so close to tracking their individual sectors as GLD does.

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