TheBullionDesk.com today more or less accused GATA of causing today's smashing of the gold price. The accusation came in a brief market note by the site's proprietor, Ross Norman, suggesting that the World Gold Council's new exchange-traded bullion fund had been forced on Tuesday to sell 15 percent of its gold holdings on account of "a foul attempt by a rival to raise ill-founded concerns about the product" -- that is, GATA's call this week for the council to explain the duplicate serial numbers on some of its gold bars and to answer several questions about the fund's operation.
Reuters and Dow Jones Newswires distributed reports about the huge dishoarding by the EFT. Here's the Dow Jones story.
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Fall in StreetTRACKS' Stock Encouraged Gold Slide: Trade
By David Elliott Dow Jones Newswires Wednesday, December 8, 2004
LONDON -- The 3.5 percent fall in the price of spot gold Wednesday may have been encouraged by the sale of 15 percent of the gold held by the StreetTRACKS exchange-traded fund, or ETF, analysts in London said. The total net asset value of gold in the trust stood at 88.02 metric tons Wednesday against 103.56 tons Tuesday.
Gold fell to $436.90 a troy ounce at the London fix Wednesday afternoon against $451.80/oz Tuesday afternoon.
While most participants agree the market was primed for a slide -- in light of an overbought technical picture and a bounce for the dollar -- they also believe the fall in tonnage in the StreetTRACKS trust was responsible for some of the selling.
The fall in the StreetTRACKS tonnage highlights the expectation by holders of the shares that the share price and price of gold is set to fall, said an analyst.
"It hasn't helped sentiment," said Kamal Naqvi, precious metals analyst at Barclays Capital.
StreetTRACKS gold shares were launched Nov. 18 on the New York Stock Exchange to track the price of gold. Each share represents one-tenth an ounce of gold.
In the first week of trade to Nov. 26 the trust built up a total net asset value of just over 100 tons, but since then this remained virtually unchanged until the decline Tuesday.
Over the same period the share price for the fund has also remained steady, closing Tuesday at $45.11 compared with the close on the first day of trade at $44.38. At 1626 GMT Wednesday the shares were trading at $43.62.
"Gold was primed for a correction but it seems to me an interesting correlation that the StreetTRACKS tonnage fell at the same time," said Philip Klapwijk, managing director of GFMS Ltd.
The StreetTRACKS Web site says the tonnage in the trust for Wednesday will be updated between 1615 and 1630 EST.
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The Bullion Desk's blaming GATA for the gold crash was followed there by the unusual posting of an open letter to your secretary/treasurer by a Bullion Desk reader, David Walker. The open letter carried a preface declaring that the Bullion Desk fully endorsed its views.
Walker's letter at the Bullion Desk can be found here:
Walker echoed the Bullion Desk's own complaint that GATA had wrecked the gold market by criticizing the gold council's ETF, and he attempted to answer the questions GATA had directed to the gold council.
As authority of one of his answers, Walker wrote that he had spoken with a representative of the ETF, but when I briefly engaged him by e-mail and asked him if he was speaking for the fund or the World Gold Council, he did not reply. So it may be suspected that Walker's letter was more or less ghosted for him or that he is serving as an intermediary for the fund or the council so that the council might not have to engage directly with people who press inconvenient questions.
Later Walker's open letter was posted at 321Gold.com here:
While GATA's questions about the ETF's operations are still compelling -- and will be reviewed again below -- the most remarkable thing here is the old pattern of gold-news Internet sites to avoid at any cost doing real reporting on the gold market. For all the space devoted to bashing GATA today at the Bullion Desk and 321Gold, neither of those sites, nor any other gold sites to GATA's knowledge, has ever directed a single question to the biggest participants in the gold market, the central banks. Nor do these sites seem inclined to question the gold council directly even though its ETF has been heavily publicized for months.
The Bullion Desk said today that it fully endorsed Walker's letter about the ETF, but how could the Bullion Desk do so without doing or referring to any original reporting on the fund? Would a Q&A with the gold council or the fund's managers be so out of line for the Bullion Desk? To most people it might look like basic journalism.
Indeed, the greatest deficiency of the gold market and the financial markets generally may be the lack of basic journalism -- journalism that goes beyond the recycling of press releases and government statements.
But to return to GATA's questions, and to assume that Walker is acting as intermediary for the ETF and the gold council:
1) Why does the bullion fund list ownership of duplicate gold bars?
Tim Wood's admirable reporting last night at ResourceInvestor.com, notice of which was dispatched to you, seems to have resolved this question, if only unofficially, since the gold council still does not speak directly. Different bars refined by Johnson Matthey apparently carry the same serial numbers and the ETF listed the duplicate numbers without explanation, thus erroneously suggesting double counting. That is, the fund's practice was deficient, was fairly questioned, and required explanation.
2) Why have all the custodians and potential custodians of the fund's gold not been identified?
Walker contends that they all HAVE been identified and quotes the fund's prospectus: "The subcustodians selected and used by the Custodian as of the date of this prospectus are: the Bank of England, The Bank of Nova Scotia (ScotiaMocatta), Deutsche Bank AG, JPMorgan Chase Bank, and UBS AG. The Allocated Bullion Account Agreement provides that the Custodian will notify the Trustee if it selects any additional subcustodians or stops using any subcustodian it has previously selected."
But note that to notify the trustee is not necessarily to notify the investing public as well. Is it possible that ETF gold could be stored with other custodians without immediate notice to investors?
3) Why is the fund refusing to let its gold holdings be fully and publicly audited?
Walker denies that the fund is refusing full and public audits. But then he writes that there indeed might not be audits if gold is placed with certain subcustodians:
"If 100 percent of the gold bars are held directly by the Custodian, which is the current situation, then there is provision provided for a 100 percent audit by the trust as found in the SEC filings:
"'The Trustee may, upon reasonable notice, visit the Custodian's premises up to twice a year and examine the Trust's gold held there and the Custodian's records concerning the Trust Allocated Account and the Trust Unallocated Account.'"
"However in the event a subcustodian is used it would be up to the Custodian to audit subcustodians per any audit provisions between the Custodian and the subcustodian. Any gold held would be in allocated form, thus property rights to the gold have been established. Since it is intended that HSBC has 100 percent control, all gold would be subject to 100 percent audit directly by the Trust's auditors."
4) Is any of the fund's gold being leased, made available for leasing, or encumbered in any way?
The best Walker can do here is assume that since no risks of leasing are cited in the fund's prospectus, there won't be any leasing. That's a big assumption. How much more persuasive it would be to get a simple, straightforward yes or no directly from the fund rather than a guess from an intermediary. Why should such a simple question be so difficult?
5) Exactly what is the fund's relationship with the Bank of England, a major lessor of gold?
Walker's answer is contradictory and disingenuous and only validates GATA's concern:
"The Fund has no relationship with the Bank of England. The Bank of England was listed as a POTENTIAL subcustodian that the Custodian MIGHT use in the normal course of business. Certainly HSBC, being the largest LBMA member, would more than likely have dealings with the BoE from time to time. During my conversation with the Fund representative, Mr. David Smith, he mentioned that there has been talk of discontinuing the BoE as a POTENTIAL subcustodian."
That is, there is no relationship but the fund prepared for a relationship and now that people are concerned about it, the fund might not go through with it.
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Let it be said again: The mystery and deception carefully woven around the world's gold reserves are the foundation of gold leasing, the suppression of the gold price, and the manipulation of the gold market.
GATA favors anything that democratizes and clarifies gold ownership -- which could include an exchange-traded fund -- provided that there is every assurance of the security and custodianship of the gold involved and the fund doesn't become just another derivative for market manipulation.
So far the World Gold Council and its associates in the ETF have not provided that assurance, and intermediaries making arguments for them will not be good enough. Indeed, the use of intermediaries by the council and the ETF can only tend to confirm suspicions that the true answers are not good ones.
If the World Gold Council wants to speak for gold, it will have to speak. It should speak not only about its ETF but, more importantly, about the open and surreptitious intervention of central banks in the gold market, a subject about which the council long has been deliberately and disgracefully silent.
In the council's silence, GATA will do its best to speak for gold.
Since the last two weeks have been full of anguished public statements by central bankers about currency intervention and commentary by gold market analysts about the likelihood of a sharp decline in the gold price, it is absurd for the Bullion Desk or anyone to attribute to GATA the power to crash the gold market or any market. Surely if we had such power we would not have just crashed the gold market down on our own toes. (More than our toes, actually.)
But let's see if the Bullion Desk is right. Here's fair notice: Once we get positioned, we're going to see if we can do it again on Friday, this time to the bond market, and, if that works, on Monday to the South African rand!
