Hi Ho "SILVER"

[ynot]

If it transpired, which i doubt, that some ETF /derivative based PMs "is not real gold or silver" would you not think that would make the real bullion even more valuable?

[Skol]

If it transpired, which i doubt, that some ETF /derivative based PMs "is not real gold or silver" would you not think that would make the real bullion even more valuable?

Not sure, but one thing I do know, ETF/derivative based silver is very liquid, the real thing isn't. There has never been a run-up in gold or silver since the advent of ETF's, so no one really know what will happen in the event of a major downturn, but May 2011 may provide an indication when silver fell 35% in just a few days. Look at what happened to oil in 2008, that might give you an idea as well, oil fell almost vertically from $147 to $31.

A book I have here says:

"ETFs may have offered tremendous benefits when they were introduced, and still continue to offer investors a way to pick specific sectors, themes, individual commodities, and so forth, but we are at a point where ETFs may have created such investor frenzy and overinvestment, that current prices for stocks and commodities may be highly overextended - and set for a sharp pullback."

The book has just been published.

From August 2010 to August 2011 gold rose 25% while silver rose 166%, a historically unsustainable level, and an indication of a tulipmania.

[ynot]

For arguments sake lets say there are ETFs out there that are not backed by anything physical, or at least not backed by 100% physical.
I think this is a possibility.
What repercussions could we see in in the PM markets? Prices up or down for the genuine article?

[Skol]

For arguments sake lets say there are ETFs out there that are not backed by anything physical, or at least not backed by 100% physical.
I think this is a possibility.
What repercussions could we see in in the PM markets? Prices up or down for the genuine article?

Well I would imagine that shonky ETFs would erode investor confidence, and cause a wave of selling. There certainly are concerns over whether ETFs have sufficient backing, and according to one ETF prospectus:

"Gold bars allocated to the Trust in connection with the creation of a basket may not meet the London Good Delivery Standards."

You're probably not going to find out whether there's fraud or insufficient gold or silver to meet the selling demand until there's a collapse of the price. As Warren Buffett once said:

"It's only when the tide goes out you find who's been swimming naked."

Like the finance company collapses that impoverished thousands of trusting punters.

Those holding physical gold or silver think they're bulletproof but that simply isn't the case, in the event of a collapse in the price the liquidity of physical PM would dry up.

[ynot]

Thats assuming there would be a collapse in the physical.

Maybe only ETF holders exposed swimming naked.

[Skol]

Thats assuming there would be a collapse in the physical.

Maybe only ETF holders exposed swimming naked.

They would both go down together, selling of ETFs would force a liquidation of their holdings, whether stocks or physical, bringing down the price.

For the last 5 years the price of silver is 90% ahead of the silver miners ETF.

[ynot]

Looks like the ASX silver ETF is bang in line with the Ausi silver price. $32.66 today.

[denpal]

They would both go down together, selling of ETFs would force a liquidation of their holdings, whether stocks or physical, bringing down the price.

For the last 5 years the price of silver is 90% ahead of the silver miners ETF.

Against my silver miner POS is down.

[Silverlight]

Back into silver via shares at the end of last week @ 25, have been out for a year.

We might head back to 20 an ounce, but the long position is only quarter size, so ability to add more below 20, probably not the metal shares in silver producer/ royalty companies.

Sold out half my position tonight at just over $40, for a 60% return in 11 weeks.

Skol when you take an actual position on either side let us know ;-)

[Skol]

I have taken a position - I don't own any. My position's the sharemarket, which historically has risen when gold's declined, and vice versa, however the opposite is now the case.

Gold's up, so's the sharemarket, something isn't right, gold and silver are enormously overvalued.

Demand for silver in China is reported as lacklustre given the 15 months of fabrication demand they've accumulated.