A Mad Rush as Gold Bugs Get the Boot (vault readied for big players)

WSJ ^ | 11/24/09 | CAROLYN CUI

[TigerLikesRooster]

A Mad Rush as Gold Bugs Get the Boot

By CAROLYN CUI

Fleets of armored trucks piled with gold bars and coins have been streaming out of midtown Manhattan in one unexpected consequence of the gold craze.

Amid gold's rise -- it has gained 32% this year and reached a record on Monday -- investors have been loading up on bullion and coins. One big problem now is where to store it. The solution from HSBC, owner of one of the biggest vaults in the U.S.: somewhere else.

HSBC has told retail clients to remove their small holdings from its fortress beneath its tower on New York City's Fifth Avenue. The bank

[TigerLikesRooster]

So who are these big boys demanding large storage space? If we can get their list, it would be an interesting exercise to find out what they have said about gold right up to the recent past. I suspect there will be those who have been loudly trashing gold in public while secretly hoarding it.

[TigerLikesRooster]

Ping!

[dennisw]

So who are these big boys demanding large storage space? If we can get their list, it would be an interesting exercise to find out what they have said about gold right up to the recent past. I suspect there will be those who have been loudly trashing gold in public while secretly hoarding it.

If I was a Wall St sack o shiite making huge money off derivatives and credit default swaps I would be putting my bonuses into hard assets because I would know that what I'm doing is trashing the economic system for my own short term gain and profits and that the walls will soon be tumbling down due to my efforts and the efforts of thousands like me. The idea being to take fake money off the table and convert into real money

But most of these sacks o shiite buy into their "masters of the universe" myths so they invest their bonuses in ephemeral crap....Though with the big buzz au/ag are getting they are changing their thinking a bit

[count-your-change]

I think if anyone needs a place to store their gold my garage still has lots of unused space and I promise it’s very safe. I promise.

[Leisler]

The thought of people preferring gold over United State Dollars, backed up by tax cheat and duffus Timmy Geithner, Ben ‘Helicopter-next-vacuum’ Bernanke, the right honorable Barry Soetoro and the 500 clown posse of Congress...is....well....well..um.... I can’t blame them.

[Travis McGee]

Even the big players want to have their own physical control of their gold bullion. They are terrified of some type of govt. nationalization or freeze.

[TigerLikesRooster]

Indeed, the sentiment about gold abruptly shifted in the last several days. Previously, it had been a slow climb, with intermittent drops.

[boomstick]

HSBC is the custodian for the GLD trust (the ETF that tracks the price of gold). Whenever demand for shares of GLD causes the price to go above the price of gold, new shares are issued and more gold is bought. So if you look at the number of outstanding shares of GLD, and thus ounces of gold that should exist in custody, you can see that there has been a lot of demand out there. So my guess is that a big chunk of the need for space is probably from HSBC’s own activity as custodian.

[Travis McGee]

Do you trust GLD? At the end of the day, an “owner” of shares of GLD only “owns” pixels on a computer screen, that can disappear in a blink.

Only gold in physical possession is real gold. GLD is a chimera.

[Travis McGee]

The price suppression tricks have all failed, the options were not covered, adn the shorts are getting slaughtered. Now starts the big rise.

[TigerLikesRooster]

Not being knowledgeable with details of gold market, I refrained from commenting further, but that crossed my mind. Maybe the purposeful suppression of gold price has all failed and it has broken free.

[Timocrat]

Typical Bankers. Now that it’s started to rain they want their umbrellas back.

[Travis McGee]

That’s what many believe.

[danielmryan]

It's possible to redeem gold from the SPDR gold trust, but only in "baskets" of 100,000 shares. IIRC, this means units of 10,000 oz. No partial baskets will be redeemed. The trouble is, the only entity permitted to do so is a so-called "Authorized Participant," which has to be a broker-dealer. Even if an individual has the requisiste 11+ million dollars' worth of GLD, (s)he would still have to go through an "Authorized Participant" dealer to get the gold. Also, the gold is transferred to a so-called "Authorized Participant Unallocated Account." The gold in such an account is not segregated from SPDR's own holdings.

It is possible to get physical gold out of the thing, but these hoops have to be jumped through:

• Pony up a 100,000-share basket or putting together a consortium that can muster said basket;
• going to an institution that's an Authorized Participant and depositing the shares therein;
• get the Authorized Participant to hand the shares in for redemption to the SPDR Gold Trust itself [remember, we're talking $11+ million per basket here];
• pay the $2000 redemption fee, plus any other fee the Authorized Participant cares to charge;
• get title for the gold in the Authorized Participant's Unallocated Account

At this point, the redeemer(s) would have a slip of paper from the Authorized Participant for title to a basket's worth of gold. There would be a further fee-laden wrangle to get the physical gold itself, but it could be done.

The trouble is, the disbursed gold might well be located in London U.K.! Imagine the plane ride (and customs hassle) that would go with getting the gold from London.

There's also another trouble point. In matters of redemptions and direct purchases from the trust itself, SPDR has held itself to a "gross negligence" threshold for liability - not "negligence." The latter apples to more workaday operations.

To sum up: it is possible to get physical gold from the SPDR Gold Trust, but only in very large amounts. An institution could test the trust from time to time, but not an individual unless said individual is very rich and doesn't mind being thought of as a bit of a nut.

[Info gotten from the SPDR Gold Trust's prospectus, whuch can be downloaded from a link on this page. The above procedures only apply to U.S. investors.]

[Travis McGee]

I’ll stick to physical, thanks, and leave the “paper gold” to the brain trusters.

[danielmryan]

To be honest, the only gold I've ever bought was physical too.

[boomstick]

Thanks very much, I didn’t know the terms of redemption. That seems to have been written so that no one would ever be in a position to demand physical redemption.

[boomstick]

Hear hear. If you want to own gold as a hedge against monetary collapse, then why would you ever use a financial proxy like GLD? There have been articles discussing the fact that the trustee can rehypothecate the holdings, in which case there is absolutely no security in the ETF units.

The only issue that gives me the heebie-jeebies is that bullion dealers have to (under the Patriot Act) record personal identification information. If the time comes when Heli Ben and Timmy Taxes decide to confiscate the private holdings, they know where to find it. >: (

[danielmryan]

That's why goldbug Doug Casey is recommending owning foreign land as a confiscation hedge. Here in Canada, the best price (both buying and selling) is courtesy of Scotiabank, but they require ID to sell. Taxes and all.

[By the way, you're welcome.]