Thursday, August 18, 2011

Protecting our wealth in the impending economics crisis 2

Physical Bullion ETF
In contrasts to GLD or SLV, physical bullion ETF are fully or almost fully allocated. These ETF often commands a higher premium over spot precious metal price. The more popular most such as PHYS and PSLV can command at times 19% premium above spot precious metal.

However one should not underestimate the danger of government's desire to confiscate bullion. The ETFs for their visibility and availability make them good target.

That happens over and over again in history. One of the recent confiscations occurred in USA, the so-call most democratic country in the world.

Digital gold currency
Digital gold currency is in essentially retail bullion banks. They are supposed to be 100% backed by physical bullion. Customer may be at risk of being defraud by Digital gold currency provider, if the later rigged its gold reserve data.

All paper bullion involves counter party risk. And if one really wants to hold paper bullion, among the various provider, Goldmoney is the most trusted among the precious metal bug community. Goldmoney is deemed more reliable than majority of the paper gold product, including futures contract or gold certificate.

(The writer hold no position in Goldmoney and is not responsible on any lost incurred by anyone who invest in it)

Gold and Silver Futures 
The future contract of precious metals are cleared by the extremely corrupt COMEX. At times, it provide a leverage higher than 30 times. COMEX is a tool of central bankers for downward manipulation of precious metals.

COMEX is notorious of rigging the games in favor of corrupt bullion banks especially JP Morgan and HSBC. Some times during the end of last April and start of May, COMEX hiked the silver margin on five occasions in eight days causing the silver price to crash, wiping out many speculators and bailing out big banks.

In addition, there are persisting rumours and speculations of impending COMEX default. By and large, upon an event of insolvency of JP Morgan or HSBC which hold concentrated short precious metal position, COMEX may default wiping out investors.

Derivative based precious metal ETF
The derivative based ETFs is popular as it magnify the gain when the underlying precious metal moves. The DGP UGL and AGQ magnify the gain by two times. The DZZ, GLL, ZSL are two times leverage in the inverse direction.

No one knows exactly the terms and counterparties of these leverage ETF. Many speculate that the eventual underlying instrument of these ETF would still be hedged by COMEX future contracts. And investors of these ETF must be acutely aware that the breakdown of COMEX will renders the value of these ETF to zero.


Anonymous said...

hi veritas, today gold hit all time record. do you think in near terms, will it go higher with the possibility of coming QE3 by Ben Bernarke?

Veritas said...

Right now, the tea partiers and republican are making more and more buying the idea of "balancing budget". There will be lots of resistance against QE3.

You will see QE3 only after another serious trouble, when republican elite got hurt in the downturn.

Anonymous said...

I went to the goldmoney website. The charges to buy and store gold seems quite high. Furthermore, there is no way an individual buyer can be assured the he physically own the gold since it is stored in a vault in another country and verified by a third party which you have to put your total trust in.

Veritas said...

I have no way to determine whether Goldmoney is trustworthy.

However, favourable opinions are given by many goldbug like Mike Maloney and Jason Hommel.

In my opinion, The best is still to hold physical.

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