Tuesday, December 17, 2013

Dave Nadig gloats over the destruction of gold

Dave Nadig - fool's gold: the end of an era. Don't know this guy, but Josh Brown linked to him. He has an interesting point about the gold investment industry:

GLD’s peak NAV in August last year was $184.59. On that day, there were 424 million shares outstanding, for net assets of more than $78 billion, with an implied annual fee due of $313 million a year.

Today assets stand at just $33 billion—well under half their peak, with an implied fee base of $131 million a year. That’s nearly $200 million that’s leaving the GLD management ecosystem.

I’m not expecting anyone to feel sorry for the poor ETF issuer here (State Street and the World Gold Council). Rather, I’m pointing out that decline in gold has made for some rather dramatic shifts in the investment economy.

That's an interesting point, no?

Then he spends a big chunk of the article putting the boots to Eric Sprott:

Consider Eric Sprott. I first came to know of Sprott when his Physical Gold Trust launched in 2010—right in the froth of the run-up—and it was being called an “ETF” by various media sources (it’s not; it’s a closed-end fund). At the time, I ripped it apart for tax issues, poor marketing and various other shortcomings.

That’s nothing to the savaging Sprott received at the hands of one of the smartest bloggers on the Web, Kid Dynamite. Kid Dynamite has made a kind of sport out of watching how Sprott’s closed-end funds magically become un-closed and issue new shares when they trade to large premiums.

Nothing wrong there, other than the fact that the big recipient of those nonpremium shares tended to be other Sprott funds, who could then sell them for the premium price. Nice work if you can get it.

But while the various shenanigans may have worked on the way up, they’ve brutalized the company—and Eric Sprott—on the way down. Take their flagship closed-end gold fund, PHYS. It launched on Feb. 26, 2010. GLD investors are up 9.09 percent since then. PHYS investors are up 6.36 percent. I don’t know how you leave 1 percent a year on the table when your only job is to buy gold and stick it in a vault, but there you have it.

And a comment about the worthlessness of all goldbug commentary, except of course for my blog which is awesome:

Of course, the question any rational investor should ask is, What’s next? And that’s where it becomes very difficult to read the news. In most rational sectors of the global economy, analysts are analysts.

You read the reports from agricultural experts or retail-stock experts, and they generally call things as they see them. In the precious metals space, nearly every article you get off any kind of Google search will always be telling you why “Now is the time!”

And a final bit of insight:

It’s important to remember that gold—and the entire gold investment economy—is unique. Gold, by itself, is useless and valueless. It has value only because it’s scarce, and then only because enough people believe its scarcity can make it a useful medium of representing value and making transactions. Gold is, essentially, an idea that people assign value to. Lots of folks believe? It goes up. Crisis of faith? It tanks.

Which even applies to the China and India EM secular wealth growth story.

Was an interesting article, I felt like sharing it.


  1. A fair enough read. Though this at the end...

    "Gold is, essentially, an idea that people assign value to. Lots of folks believe? It goes up. Crisis of faith? It tanks."

    ...applies to many things equally, not just gold. Not least of which, currencies.

  2. The ag and finance reports are rational because unlike precious metals, investors who buy and sell them don't construct a bullshit eschatology around them.

  3. He also notes in the comments that this commentary (reasonable) does not reflect the future of gold.

    I have doubts that Indians/Chinese will stop buying. That's your thesis man!