"WE BUY GOLD!" screamed the metal sign hung around the neck of a hawker on Fifth Avenue in New York City this Friday morning, Sept. 17. This gold rush business is getting crazier and crazier. Startled, I stopped and received a card from the hawker for Royal Gems, a dealer from the diamond district on West 47th Street. A gentleman there told me they were buying gold jewelry and bullion, either with cash or check, but refused to give me any more details over the phone. I was invited to go to 47th Street to learn more. By the time I got to the Forbes building, the price of gold had moved up to $1,280 an ounce, and the bullish commentators at other financial websites were huffing and puffing about closing in on $1,300 an ounce. As I pointed out Thursday in my blog, The Bottom Line, conservative pundit Glen Beck was shilling for a gold investment firm, Goldline, on his television programs, as the cure for the hyperinflation that's around the corner. Whoops. My friend, Ira Stoll, versatile author of the Spirit of Capitalism blog, had broken the news on Seeking Alpha that liberal Rep. Anthony Weiner, D-N.Y., had scheduled hearings next week on a law that would regulate gold-selling companies, an industry with relentless advertising that is now a staple of cable television and AM radio. Politics is fast becoming a controversial force in the maddening, widening gold rush. Weiner's proposed bill would require companies like Beck's Goldline and other merchandisers of the gold fad to "disclose the reasonable resale value of items being sold." I have to agree with the ideologue Stoll that this displays a remarkably primitive and unrealistic view of how any market works. Have you seen the television come-on in the Cash for Gold commercial, which asks viewers to send their gold into cash? State Street is the creator and purveyor of the mightiest gold ETF, the SPDR Gold Trust. It's known as GLD to the ticker-symbol conscious crowd. GLD holds current assets in gold of $52.96 billion, which has got to rank it in top ten institutional holders of the precious metal. GLD made its first purchase of gold bullion on Nov. 18, 2004, at $442 an ounce. Today's London evening fix was at $1,272.50. That means the gold price has gone up $830.50 in the past six years, a compound rate of return of 14% a year.So far in 2010 the GLD's gold holdings have risen by $7 billion. There have been 433 increased positions in GLD and 240 who have decreased their positions. The unhappiest GLD investors must be the 59 shareholders who liquidated their positions entirely. Those who sold, but not entirely, include WS Management in Jacksonville, Fla, Altheia Research in Santa Monica, Calif., and Allianz Global Investors, which, much to its probable dismay, liquidated more than half its investment. The five largest GLD holders are Paulson & Co., the hedge fund group that made an enormous killing going short subprime mortgages, with almost $4 billion, Northern Trust, Bank of America, Morgan Stanley and Blackstone Advisors. After that, the pecking order goes Eton Park Capital, Soros Fund Management, JPMorgan Chase, UBS AG, Wellington Management and Susquehanna International. These are all institutions holding the GLD for others. All these folks together own 1,294,746 tonnes of gold, ranking the SPDR Gold Trust the sixth-largest holder of gold in the world, after the U.S., Germany, the IMF, Italy and France. Based on holdings as of April 2010, State Street's GLD owns more gold than China, Switzerland, Japan, Russia and the Netherlands. Obviously there are gold investors who are surprised that the precious metal has risen to such heights. After all, AngloGold Ashanti, the third-largest gold mining concern, just threw in the towel on its trade hedging the price of gold, and intends to be stark naked on its annual production--a serious bet that prices are heading yet higher. So far so good for the burgeoning gold crowd and GLD, but consider the risk. Supposing gold plummets several hundred dollars an ounce and Paulson, Blackstone, et al want to liquidate, will there be ready and willing buyers in size? Will there be liquidity if gold suddenly falls out of favor? This is the tremendous risk the giant bulls are taking. Safe Harbor Statement: Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints. Nothing in this article is, or should be construed as, investment advice. |
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