Are leading precious metals ETFs based on undisclosed conflict...

Are leading precious metals ETFs based on undisclosed conflict of interest?
Submitted by cpowell on Mon, 2010-05-03 22:27.
Section: Daily Dispatches
6:25p ET Monday, May 3, 2010

Dear Friend of GATA and Gold (and Silver):

Do financial houses HSBC and JPMorgan Chase & Co. have a conflict of interest in serving as custodians of the metal held by the major gold and silver exchange-traded funds, GLD and SLV, even as those financial houses are themselves holding major short positions in the precious metals? And does the failure of the prospectuses of those ETFs to note the short positions of their metal custodians constitute a material omission in violation of U.S. securities law?

Those questions are raised today in a compelling report written by Catherine Austin Fitts, founder and managing member of Solari Investment Advisory Services LLC, publisher of The Solari Report (http://solari.com/store/the_solari_report/), and a member of GATA's Board of Directors, along with her lawyer, Carolyn Betts.

Fitts and Betts note the increasing evidence that more claims to gold and silver have been sold than there is real metal to fulfill them. Of course GATA long has expressed skepticism about the precious metals ETFs and has wondered whether they are used in part for market manpulation, to make investor-owned metal available for shorting and price suppression at strategic moments, against the interests of the ETF investors.

The Fitts-Betts inquiry is titled "GLD and SLV: Disclosure in the Precious Metals Puzzle Palace" and you can find it at the Solari Internet site here:

http://solari.com/archive/Precious_Metals_Puzzle_Palace/

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

The above is from http://www.gata.org/node/8600

My comments:

It's good to see this potential conflict of interest, which I have often referred to, being put under the microscope.

After all, surely the most obvious question is "Why is a large paper gold or paper silver short acting as the custodian of a gold or silver ETF? Just to promote physical buying demand to the detriment of their large paper short positions? I think not.

"Investors deserve a clear picture of what they are buying so they can make informed decisions about whether they want to buy and at what price. We believe the disclosures regarding GLD and SLV are inadequate. Given the conflicts of interest of the Custodian banks and the general state of standards and ethics within the bullion banking community, we believe the market discounts of GLD and SLV to silver and gold melt value are more than warranted. At best, GLD and SLV are simply a bank deposit priced in spot prices without the benefit of government deposit insurance. At worst, GLD and SLV are vehicles by which investors provide the banking community with the resources to control and manipulate the precious metals market without adequate compensation."

The above quote is from the detailed article referred to above at http://solari.com/archive/Precious_Metals_Puzzle_Palace/