Gold Soars To Seven-Week High
Buying Gold Bullion: The Trend Continues to Accelerate
So why did Gold dip? The current signals in the gold market dictates that the trend of buying physical gold bullion is favored over other more speculative forms of investing in the precious. Banks concerned about liquidity and solvency in the European banking system have been lending and possibly even selling gold to raise much needed cash. According to John Dizard, contributor to the Financial Times on the subject of gold investing wrote the following:
“Gold market people say European commercial banks are being driven to lend gold for dollars at negative interest rates just to raise some extra cash for a few weeks. There’s not a lot of transparency about where the banks are getting the gold they are lending out, but it could be lent to them by either their national central banks, or by gold exchange traded funds.”
Gold Backed ETFs
Those of own gold exchange traded funds (ETFs) would be quite concerned to discover that the ETF’s they own, which are backed by physical gold, may be affected by certain banks which have been lending out the gold that represents what they own through their ETF’s.
The leading gold ETF, GLD has been criticized by many analysts for its extremely complex structure and prospectus. Those who have criticized GLD have also shed light on possible conflicts of interest in its relationships with HSBC and JPMorgan Chase which are believed to have large short positions in gold and overall lack of transparency.
If it holds true that European banks are lending gold into the market from those ETF’s, then the concerns about the gold ETF market are valid and real. The questioning now would center around whether those ETFs that claim they are fully backed by the gold are indeed so. These are the same gold exchange funds that claim to own gold in trust on behalf of clients, but may be lending out that very same gold.
The fallout of these circumstances has resulted in both some hedge funds managers and investors liquidating their ETF positions in favor of buying physical gold bullion. This trend is quickly spreading as prudent investors rightly seek to avoid the systemic risks of gold lending held in trust by gold backed funds.
» Read our article: The Best Way to invest in Gold
Past performance is not an indication of future potential values.
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