What Do You Mean "Gold Shortage?"

Thursday, October 08, 2009 , , , 0 Comments

WC Varones teaches us a lesson in gold:

In related news, the U.S. Mint suspends production of proof and uncirculated gold and silver coins. They claim that they can't get the blanks fast enough to mint enough coins, which is complete bullscheisse. You may recall last year's shortage of physical gold. That would obviously have been a sign that the Mint needed to ramp up production. But no, a year later, they still can't meet demand, claiming that they can't get enough "blanks," the coin-shaped pieces of gold on which the Mint impresses the images and writing.

Let me let you in on a little secret. If the government wanted you to have gold, it would not be a problem to find a company that was able to form gold into little blank coin-shaped pieces. A hobbyist machinist could set up a pretty good operation in his garage to do this.

JDA hereby tips her hat just for use of bullscheisse alone. Oh, and he's right. I'd tell you to hit the bunker but chances are if you aren't hunkered down by now, it's too late to start your disaster planning. Sorry about that.

JDA also recommends Antal Fekete's Gold is pale because so many thieves plot against it (via GATA):

Let me spell out for my readers what the vanishing of the gold basis means from the point of view of the puppet-masters of the gold futures markets.

It means that they are fighting a losing battle. They are desperately trying to coax gold out of hiding by offering ever higher bribes -- not in terms of the price but in terms of the basis. A low basis means that they offer to take your cash gold and let you have gold futures in exchange at a discount price. (The discount is contango minus the basis, so that the two are inversely related: As the basis falls, the discount increases.) This will allow you to invest an amount equal to the price of gold (less 5 percent, the margin on the gold future) in any way you want and, having paid the reduced contango, you can keep the profits. The point is that you will still benefit from any advance in the gold price, just as you would if you owned cash gold. You can have your cake and eat it too.

We should therefore be concerned when we see the Evil Twins of GS and JPM piling into gold futures. The Underground Investor goes even further down the gold rabbit hole in The GLD and SLV: Legitimate Investment Vehicles or Not?

I have maintained for a long time now, ever since I carefully read the GLD and SLV prospectuses, that any investor that buys the GLD and the SLV and believes that these two investment vehicles are as risk-free and as sound as purchasing physical gold and physical silver is highly delusional. I call the prospectuses of the GLD and the SLV “Alice in Wonderland prospectuses” because it is literally impossible to ascertain what information contained within them is fact or fiction. Of course, investment advisers that sell their clients the SLV and GLD depend upon their customers not reading the prospectuses, or perhaps even reading them, but not understanding them. Some may say that the word delusional is a harsh term, but a mere glance of the GLD and SLV prospectuses explains my use of this term. Both the GLD and the SLV prospectus contain the following two statements:

“Neither the Securities and Exchange Commission (SEC) nor any state securities commission has approved or disapproved of the securities offered in this prospectus, or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense” (emphasis mine); and

“The trust is not an investment company registered under the Investment Company Act of 1940. The trust is not a commodity pool for purposes of the Commodity Exchange Act, and its sponsor is not subject to regulation by the Commodity Futures Trading Commission as a commodity pool operator, or a commodity trading advisor.

Furthermore, the SLV prospectus additionally states, “As an owner of iShares, you will not have the protections normally associated with ownership of shares in an investment company (emphasis mine) registered under the Investment Company Act of 1940, or the protections afforded by the Commodity Exchange Act of 1936.”

So it isn't that regulators are missing the crimes, exactly, it's just that they aren't looking.

Jr Deputy Accountant

Some say he’s half man half fish, others say he’s more of a seventy/thirty split. Either way he’s a fishy bastard.