Gold taking a breather this morning, Gundlach raises caution flag on gold ETFs

Gold taking a breather this morning, Gundlach raises caution flag on gold ETFs by Michael J Kosares for USA Gold

Gold looks to be taking something of a breather this morning after yesterday’s strong advance on the initial unemployment claims report. Today’s non-farm payrolls’ number, a drop of just over 700,000, pales in comparison.  As mentioned in yesterday’s DMR, the markets appear to be migrating from concern about the coronavirus’ economic effects to digesting the actual reality as reflected in hard numbers.  Gold is up $3 at $1616.  Silver is down 2¢ at $14.46.

DoubleLine Capital’s Jeffrey Gundlach raised the caution flag on gold ETF’s yesterday during an interview with Bloomberg.  “While ETFs such as GLD are backed by physical gold,” reads the article, “the process for an individual investor to acquire the actual bullion isn’t as simple as selling shares of the ETF.” Calling ETFs “paper gold,” he goes on to ask “What happens if physical gold is in short supply and everyone wants to take delivery of their paper gold? They can’t squeeze blood out of a stone.”

Along these lines, ABN Amro recently informed holders of one of its bullion funds that the bank was exercising its option to close the fund and pay account holders in currency rather than the precious metal. About 2000 customers were told they no longer owned the gold they thought they did – a situation which illustrates with a high degree of clarity why it is important to take seriously the warnings of market experts like Mr. Gundlach.

We cannot help but note that ABN Amro’s closure of paper gold fund comes at a time when bullion is in short supply and owners of the fund are likely to have a stronger than average desire to take delivery of their positions.  Investors of the fund, instead, were forced to sell at a time when it is very difficult to find replacement metal in the open market. There is another aphorism to go along with Gundlach’s allusion of squeezing blood from a stone: “A bird in hand is worth two in the bush.”’

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