 The streetTRACKS Gold Trust
Far more than simply an Exchange Traded Fund bringing new people
to the market!
Julian D.W. Phillips
Gold-Authentic Money
13 December, 2004
The selling of 15 tonnes of
gold from the streetTRACKS Gold Trust, appeared apparently, before
the price of gold dropped so dramatically, on Tuesday/Wednesday.
The importance to this action does not lie in the present arguments
being aired so fully on the web, but in the very nature of the
Trust and how it fits into the market place. We have to say that
this week has shown the present and future nature of the animal
and we are impressed by the power it is attracting. The World
Gold Council is gagged from marketing these features by New York
Stock Exchange bureaucrats in their endless wisdom.
Because of this week's behaviour
by the Exchange Traded Fund, we now subscribe to the view that
it is set to become far more than a home for a new type of Gold
Investor [so widening the market in gold], we expect it to become
a key gold market vehicle. This is a view expressed slightly
differently by Mr Pierre Ljhhyjhassonde of late, but with the
same conclusion. Why?
- It is not just that it is
a definite bridge between paper shares and physical gold [and
a very short one at that]. It does that as none has done before.
.
- It is not simply a vehicle
to attract the small man, the Pension fund, or those who want
to remove themselves form the business risks attendant on gold
mining companies, which it does superbly.
.
- Its real additional value
lies in the speed of dealing and the cost of dealing.
Essentially it is acting as
a "Jobber," the wonderful [wholesaler] fellow who on
the old London Stock Exchange would stand in the middle of the
floor, dealing only with the Stockbroker's dealers, whose "Blue"
buttons would then run to the phone to phone the completed execution
of orders to their office. They in turn reported to the Institutions
or individual Investors who had placed orders with them. The
beauty of this system is that there has been no such concept
in the Gold market before. It represents the near immediate
conversion of the piece of paper representing a small portion
of gold into an actual transaction in physical gold! The
difference between the Jobber and H.S.B.C.'s role is that the
Jobber held a position in the Stock he wholesaled, protecting
himself through the "Spread" he offered on the price.
The Trust using H.S.B.C. cannot afford to hold positions in gold,
it has to run as close to a 'zero position' as possible.
The H.S.B.C. bank is the largest
member of the gold fixing, so the most competent to fill this
role. They are in a position to provide such a speed of dealing,
so that not only the Trust, but they are not caught holding a
"position" in physical gold. Their share 'book' would
have to match their physical gold 'book' at all times, so as
not to be caught in a 'risk' position, that would make them and
the Trust vulnerable to losses. That would be the quick way to
a disaster. The H.S.B.C. bank is again, in the best position
to keep that book 'square', by being constantly on top of the
'buy' & 'sell' orders and making sure that they were selling
/ buying physical gold in an instant, to match these orders.
By virtue of their market making role in the gold market, they
can do this with ease.
[By the way, the fact that
the name H.S.B.C. stands for Hong Kong and Shanghai Banking Corporation,
so I am informed on fairly reliable information, does not mean
the Chinese government has a hand on the Till there.] [Editor's note: An
excellent history of the HSBC can be found here]
What the E.T.F. does for the
gold market is to expand the scope of the gold market and to
bring the efficiency of the bullion market to this "gold"
note market. What this will mean, in contrast to the Futures
market, is that the paper market has almost become 'physical.'
So it is no wonder that the gold price reacted to the sale of
streetTRACKS - Gold Trust 15 tonnes of gold, it is the ideal
quick dealing medium and the seller will get his price just before
the gold is dropped onto the market. Will H.S.B.C. bring in a
ruling that the price only applies to maximum size deal of 'x'
amount of gold to protect themselves? I doubt it, they will just
have to deal fast enough themselves. It is 15 tonnes deals that
tested the quality of this instrument and it passed this test
with flying colours. No doubt it will be tested in the future
on larger amounts. But the fact it passed this test, will bring
professional into this instrument in far larger quantities than
at present.
The small, medium and large
dealer in gold now has an efficient way of dealing on the gold
price. In extremis, when the very gold dealing and banking systems
are suspect, then in any event, irrespective of what any piece
of paper says, investors should have moved into holding
their gold at home.
We will see, in time, as the
different participants get used to such instruments and the way
they work that the different market players will operate with
them. These instruments will have a home alongside gold shares,
and futures and options. Indeed it may well find they themselves
have derivatives drawn from them which will then be traded freely.
We would suggest that the Bureaucrats
at the New York Stock Exchange did actually do their job and
made this share just what it purports to be. We expect it to
have a long, large and steady growth in the future, to become
a fundamental gold market investment. We believe it has just
passed an "acid" test more critical than any other!
Please note that a similar
E.T.F. is soon to be listed in Hong Kong, no doubt accessible
to the Chinese market?
Extracted from Gold - The
Weekly Global Perspective w/end 10 December, 2004
Julian W. D. Phillips
Gold-Authentic Money --> Services | Disclaimer
Email: gold-authenticmoney@iafrica.com
Website: Gold-Authentic
Money
Copyright ©2004
Julian D. W. Phillips, Gold-Authentic Money
_____________
321gold
Inc
|
