Tuesday, December 17, 2013

On gold ETFs

Mineweb - blah blah gold ETFs suck. In case you haven't heard it before, here's the key:
“Gold ETPs are preferred by a lot of people because at the end of the day it’s easier to trade and easier to manage your portfolio,” said Francisco Blanch, the head of commodities research at Bank of America Corp. in New York. “And it’s probably cheaper. If you buy physical bars, you have the cost of the bar, but you also may have to pay for storage of the physical bar. The ETP does all of that for you.”
That is why gold popped to $1900, why it's since dropped back to $1200, and why the physics underlying today's gold market is completely different than the physics underlying the gold market pre-2003.

Try to imagine what would have happened to the gold price over the past six years if there had been no such thing as gold ETFs: I think it would probably have continued its slow boring upward trajectory, with no ETF-driven pop, and no subsequent ETF-driven crash. After all, Asian physical demand kept going up, and mine reserves kept going down, right?

The only thing that's different is that incompetent Republican hedge-fund fools were able to cheaply and simply buy old via ETFs for their misinformed "coming hyperinflation" play. Because I don't think they would have bought physical bars, and because the buying and cancelling of futures wouldn't have impacted underlying physical supply/demand.

That's my theory, anyway.


  1. "and because the buying and cancelling of futures wouldn't have impacted underlying physical supply/demand."

    Not sure about that, buying futures should impact demand, provided that they are constantly rolled over. If they cancel delivery just to extend maturity (to buy again some more "futured" futures :) ) it effects supply/demand. Total net holdings of futures should mater even if actual delivery never happens.

  2. Peter Munk agrees with you, last week from the Financial Post: http://business.financialpost.com/2013/12/07/munks-lament-barricks-spiral-started-with-formation-of-gold-etf/