Top Ten Reasons NOT to own the Gold ETF (GLD)

"Given that the stated amount of gold in the GLD Trust has grown to over 850 tonnes, it appears that a lot of investors believe that investing in GLD is the same thing as buying physical gold bullion. "
–Dave Kranzler, www.lemetropolecafe.com, Little Bear Table, 2-10-2009

1.  I'll start with the Opening Sentence of the gold ETF (GLD) itself and work outwards to you. The opening sentence of the November 2004 gold ETF prospectus said, "This ETF is intended to track the performance of the price of gold."  Note that it doesn't say it will own gold, or anything so prosaic.  This Exchange Traded Fund that promises easy gold ownership for America is only going to track it.  You know, like your cat tracking a crow in the back yard.  And if GLD or your cat never quite gets there, well, it was an interesting exercise.

A careful reading of the first sentence should tell you that this is a document written by lawyers, and it is intended to be read by other lawyers who might be thinking of suing the guys represented by the first group of lawyers.  The opening sentence is nothing if not defensible.

2.  GLD Share Price: the current price of the ETF is said to be 1/10 of the price of gold.  Yet, GLD's price is usually below the actual price of gold even as priced on the COMEX.  Well, when GLD sells new shares that's the amount of money they get to buy gold.  And they buy ounces of gold with it.  This means that somehow, by some secret method, the guys managing a gold bullion ETF, while always behind the market, manage to pick up tonnes of gold at a discount to the COMEX price.  This is not possible.  The gold market is global and operates 24/7 all over the planet.  If gold is under priced somewhere, it will be arbitraged like a Tanya Harding knee chop.

Think about it.  Gold is currently very difficult to find under the earth.  It's tough to mine profitably, much less mill and smelt, and insure, transport and store.  Why would anybody be selling a bar of gold even near or below the price of an historically suspect pricing mechanism like the NY COMEX?  Why is there no premium on these shares?  The Central Fund of Canada (CEF) trades at a premium, but then, they go to some lengths to actually buy and own gold bullion.

Only if there's some other "form" of gold being purchased, such as a derivative "promising" to deliver gold, can the pricing mismatch begin to be explained.  (See #9 below, Jim Turk says there are only gold "deposits" involved here.  And Jim Sinclair says gold derivatives are being used.)

Or perhaps the disparity of price could have to do with the shorting of GLD shares by those nefarious short sellers.  With shorted shares, at the very least, you have two potential claims to ownership to a GLD share.  If the shares were shorted naked, who knows how many claimants there could be.  Want to go there?