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XMFSinchiruna (26.50)

Everybody Out of the Gold Pool!



April 13, 2010 – Comments (19) | RELATED TICKERS: GLD , SLV , BNS

This is the second installment in an ongoing investigative series to shed light upon the astonishing developments underfoot within the gold and silver markets.

If you like the article, please be sure to recommend it so that it will reach as broad an audience as possible. With a few noteworthy exceptions, the media remains decidedly silent on this story. Rather than wait for the major outlets to finally realize the enormity of this issue and the verifiable veracity of the evidence compiled, this is one Fool's attempt to hasten a public understanding. Please share this article with your friends and family, co-workers, etc. If you are active in any other online communities where you think readers would appreciate this content, please also post a link to this article and its predecessor as you see fit. Thank you for your co-operation.

Here are a few excerpts:

"If you hold unallocated gold or silver bullion certificates issued by one of the major bullion banks, I urge you to consider that this segment of the market may collectively lack an adequate physical supply of metal to satisfy claims, in the event that any significant proportion of investors tender their paper certificates for physical bullion."

"If the alleged leverage pervading the over-the-counter (OTC) markets and the futures exchanges is ground to a halt by increasing physical demand, the scarcity of supply will become more pronounced still. Just as the banks essentially wagered that mortgage values would never decline, it seems that a similarly dangerous wager may yet be on the table: a bet that gold and silver investors will never call the bluff of a massive paper-based shell game."

"If you're swimming in an unallocated bullion pool, I recommend climbing out before lightning strikes the water. For investors seeking bullion exposure through vehicles that do explicitly state the nature of their holdings, in ways that alleviate these sorts of concerns, I continue to suggest Central Fund of Canada (AMEX: CEF) and the Sprott Physical Gold Trust ETV (NYSE: PHYS). If you have any concerns or questions relating to this developing story, please post them in the comments section below, or follow my Motley Fool CAPS blog for ongoing community discussion."


The first article from this series is here.

These developments hold enormous repercussions for every sector of the economy, and indeed for every national economy on the globe. The currency-related repercussions can scarcely be overstated.

If you're not following this story, then you might as well be investing with a blindfold on.

Thank you for continuing to track this rather complex tale ... you will be rewarded for not looking the other way through your resulting preparedness for the unavoidable delevering of the paper markets for gold and silver.

Fool on!

19 Comments – Post Your Own

#1) On April 13, 2010 at 5:04 PM, XMFSinchiruna (26.50) wrote:

I ran out of space, but the following are two passages that I would have liked to include:

"With more than 40 years of experience investing in and studying the markets for precious metals, Harvey knew full well that the paltry supply his son had observed represented "a tiny, tiny fraction of what has been underwritten". According to Organ, it took more than six weeks for the bank to produce his bullion after he voiced his concern. In the meantime, Organ notified the CFTC of his predicament, but he reports that the CFTC was far more interested in the details of what Lenny had observed inside the vault."

"Now, let me be perfectly clear: the fundamental foundation for a sustained upward trajectory in gold and silver prices has never been stronger in this Fool's view. I have never felt more secure in my long-held price target of $2,000 per ounce. If anything, I wonder whether that target might one day look embarrassingly conservative."

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#2) On April 13, 2010 at 5:05 PM, RonChapmanJr (30.08) wrote:

I'm sure you've answered this before, but where would you recommend individuals buy the physical metal from?

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#3) On April 13, 2010 at 5:17 PM, chk999 (99.96) wrote:

Nice article Sinchy!

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#4) On April 13, 2010 at 6:45 PM, XMFSinchiruna (26.50) wrote:


APMEX is the best-known and most trusted name that I am aware of for purchasing bullion.


Thanks ... I'm glad you enjoyed it.


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#5) On April 13, 2010 at 7:11 PM, fewl10 (< 20) wrote:

I sold my GLD based on your research.  We'll see if you are right (if not, oh well... what's another stupid trade for me)

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#6) On April 13, 2010 at 7:27 PM, silverminer (30.04) wrote:


While I believe the research to be sound, and the red flags surrounding select bullion proxies very real, there is no telling what the timing may be for a supposed unwinding of the underlying leverage.

Also, please keep in mind that there are some bullion investment vehicles that I consider immune fom these sorts of concerns.

Thanks for reading!

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#7) On April 13, 2010 at 7:48 PM, XMFSinchiruna (26.50) wrote:

P.S. silverminer = TMFSinchiruna  :)

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#8) On April 13, 2010 at 7:51 PM, ease1 (97.15) wrote:

Great article +1 rec...  I've been following this for a while now and like fewl10 I got out of my GLD.  I bought in always knowing that it was paper and that there would probably be nothing behind it.

I'm planning on picking up more physical silver, but I'm curious if the miners would be affected negatively should this break out.  I can't see how and I've got a few (TGB, GG, and a couple more).  Not to mention I've loaded up on SLW and I've got some TIE.

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#9) On April 13, 2010 at 8:15 PM, XMFSinchiruna (26.50) wrote:


I see no risk of negative impact on the miners form these developments.

Quite the contrary, as the primary source of scant physical supply, any delevering of paper gold and silver assets will send prices for physical sharply higher, thus benefitting miners and their shareholders in my view.

May I also say that I believe you have selected well with your equities ... although I'm rather neutral on titanium.

Good luck, and Fool on!

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#10) On April 13, 2010 at 8:18 PM, XMFSinchiruna (26.50) wrote:


Permit me to add a quick caveat here, however. 

Miners with substantial exposure to metals derivatives could indeed experience a negative impact commensurate with the scale of that exposure and the underlying metal involved.

It's difficult to gauge the degree to which a delevering in paper gold and silver would impact the derivatives market for things like copper, but some impact is reasonable to anticipate.

Since investors are advised to target miners with minimal or no derivatives exposure anyway, my advise remains unchanged from before these developments emerged.

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#11) On April 13, 2010 at 10:42 PM, Tastylunch (28.56) wrote:

thanks for the warning sinchiuna I'll be sure to pass this on. I recc'ed both.

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#12) On April 13, 2010 at 10:53 PM, binve (< 20) wrote:

As always, great work!!

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#13) On April 14, 2010 at 6:44 AM, ttboydxb (28.51) wrote:

Great job as usual Sinchi.  Quick question, just working on my RL portfolio.  Of course I'll do my DD, but what would your number 1 silver play be right now?  Need some ideas, and I know you had a long silver article, but can't find it.  Was it SLW??  Thx!

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#14) On April 14, 2010 at 7:33 AM, XMFSinchiruna (26.50) wrote:


Have fun! :)

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#15) On April 14, 2010 at 9:46 AM, vriguy (65.07) wrote:

Thanks for the entire series.  I thought about purchasing some physical metal from APMEX to replace my GLD and SLV holdings, but the transaction costs for gold bullion in modest quantities (1-3 oz gold each time) is not insignificant. You buy about 3-4% over spot, and pay another 1-2% for shipping, and when you sell it is 1-2% for shipping, so at least 7-8% overall.  Then there is the question of storing it safely once you accumulate a goodish stash. On the other hand, CEF is available at a premium of 8-9% over spot. I sold GLD and SLV and moved that amount into CEF. 

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#16) On April 14, 2010 at 9:58 AM, XMFSinchiruna (26.50) wrote:



CEF remains my preferred bullion vehicle.

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#17) On April 14, 2010 at 11:40 AM, ttboydxb (28.51) wrote:

Thanks Sinchi, there goes my nights sleep!  :)

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#18) On April 14, 2010 at 3:06 PM, banjr (37.52) wrote:

Thanks, Sinchi. What do you think of GDXJ?

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#19) On April 14, 2010 at 3:14 PM, XMFSinchiruna (26.50) wrote:


Love it; Own it. :)

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