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GLD ETF and Fake Gold Conspiracy Theories

Commodities / Gold & Silver 2009 Dec 11, 2009 - 11:45 AM GMT

By: Zeal_LLC


Diamond Rated - Best Financial Markets Analysis ArticleAs the world’s second-largest exchange-traded fund, and sixth-largest holder of gold bullion, the GLD gold ETF has grown into a juggernaut.  GLD’s mounting popularity among stock-market investors and speculators has made it one of the most powerful forces in the global gold markets.  This ETF’s success is all the more remarkable considering it was born just 5 years ago, its rise to prominence has been meteoric.


GLD’s amazing success speaks for itself, this flagship ETF certainly doesn’t need anyone to defend it.  Still, the rampant GLD conspiracy theories are misleading and confusing new gold investors and speculators.  Some mainstream investors hear these conspiracy theories and, lacking the background to evaluate them rationally, assume they are true.  This slows the migration of stock-market capital into physical gold via the conduit of GLD and dampens this gold bull’s progress for all gold investors.

Conspiracy-Theorist Modus Operandi.  Since there are always people who simply love trafficking in paranoia, conspiracy theories have always existed and will always exist.  Whenever any institution gets large enough to single-handedly affect a given market, conspiracy theorists rush in to spin fanciful tales about it.  Though true in all markets, conspiracy theorists have always had a special affinity for gold.

By their very nature, most conspiracy theories can’t be proven or disproven.  They are all born in rumor.  Conspiracy theorists create rumors out of thin air, bouncing them around in their own private circles where the theories are shaped and embellished.  While most theories wither on the vine, some gain enough momentum to break out of these circles and achieve wider exposure.  These rumors come to be treated as fact, held on to by their adherents with zeal comparable to that of the devout for their religion.

Once rumor becomes accepted as fact, conspiracy theorists defend their belief system with all the ferocity of a mother bear guarding her cubs.  Their acceptance of anyone hinges on their acceptance or rejection of their pet theory.  If you advance it, they love you no matter how wrong you are about everything else.  If you reject it, they hate you no matter how right you are about everything else.  The theory is worshipped.

Successful investment and speculation require total emotional neutrality.  If you can’t suppress and ignore your own greed, fear, and every other emotion, you will never grow wealthy in the financial markets.  This creates enormous problems for conspiracy theorists, as their attachment to their theories is so emotionally-charged that they surrender their ability to think rationally.  Logic is thrown out the window.

This makes reasoning with conspiracy theorists almost impossible, like trying to convince a devout Muslim that Jesus Christ is God.  This extreme emotionality leads to the common conspiracy-theorist trait of resorting to ad-hominem attacks when challenged.  Instead of calmly debating ideas on those ideas’ own merits, they instead shrilly try to ridicule and discredit people advancing those competing worldviews.  Calling people names instead of addressing ideas has always been a sign of intellectual inferiority.  It reminds me of small children bickering on a playground.

Eventually all conspiracy theories fade from prominence even among conspiracy theorists, their lifespans are limited.  Sometimes these theories are proven wrong beyond all reasonable doubt.  Yet the conspiracy theorists that advanced the false theories never repent or apologize for misleading people.  Instead they conveniently forget their past gullibility and false witness, eagerly moving on to embrace the latest fashionable emerging conspiracy theories.  Conspiracy theorists never hold themselves accountable.

GLD Founders’ Intent Problem.  One of the more outlandish GLD conspiracy theories states that GLD is a Trojan horse explicitly designed and launched to use stock-investor capital to short physical gold.  But when you consider the circumstances surrounding GLD’s founding, this theory is pretty silly.  GLD was created by the World Gold Council.  The WGC is an industry association funded by the world’s leading gold-mining companies.  The biggest, best, and most beloved gold miners in the world finance the WGC!

These include market-darling gold miners the conspiracy theorists (and all investors) love, like Goldcorp.  At the time of GLD’s planning, the guy running the World Gold Council was the CEO of one of the world’s biggest and best gold-mining companies.  A staunch opponent of gold hedging back when it was common, this architect of GLD was universally adored by gold investors including conspiracy theorists.  He and the gold miners had a simple goal, “to stimulate and maximize gold demand by investors”.

Why would the biggest and best gold miners in the world, whose entire futures hinged on the ultimate trajectory of the gold price, launch a Trojan horse designed to short-circuit this gold bull?  This thesis is ludicrous, it makes no sense at all.  The gold miners of the world fund the World Gold Council and hold absolute power over its direction and agenda.  GLD was birthed by the very companies with the most at stake in this gold bull.  If you owned gold stocks between 2002 and 2004, you helped pay for GLD’s launch.

GLD Silent Opponents Problem.  Conspiracy theorists often maintain GLD is a total fraud that doesn’t actually own any physical gold.  If this thesis was proven true, the resulting scandal would be incredibly damaging to gold investment.  So many investors would be burned, so much damage done to gold sentiment, that it would probably take years for the gold bull to recover from such a shock.

Conspiracy theorists are the first to acknowledge that many powerful forces are not happy when the gold price is climbing.  Rising gold prices undermine central banks’ fragile fiat currencies, as this metal is the mortal nemesis of all the endless monetary manipulation central banks practice.  And Wall Street hates gold too, as a rising gold price competes with the stock markets.  This metal diverts away capital (and attention) that Wall Street believes should be invested in stocks instead.

Since breaking the back of this gold bull would be hugely beneficial to both central banks and Wall Street, why haven’t they exposed GLD as a fraud?  Central banks surely know if GLD is really buying gold bullion or not, they could pull the plug in a second if GLD’s claims weren’t true.  Wall Street, with its intimate knowledge of aggregate capital flows, is in a similar position.  Why not expose such a fraud and destroy gold-investor psychology?

Why haven’t London gold traders exposed GLD?  They would know if it wasn’t really buying and selling physical gold bullion as claimed.  One trader who blows the whistle would gain considerable fame.  Why hasn’t the US Securities and Exchange Commission (GLD’s regulator), which is reeling and fighting for its life after failing to uncover the Madoff scam, exposed a GLD fraud?  It would give the circling politicians a great reason not to strip the SEC of its authority and merge it into other regulators.

The silent opponents, those powerful vested interests that would love to see GLD fail for various reasons, are a huge problem for conspiracy theorists.  GLD is not a small operation, countless professionals can see various aspects of its actual gold-trading operations in the real world.  Perhaps the fact that those people and institutions in positions to know if GLD is legit, circles in which many are very anti-gold for various reasons, have not called out GLD as a fraud is revealing in itself.  The only reason they wouldn’t is if GLD was the real deal, actually doing what it is claiming.

Interestingly when the comparable SLV silver ETF was in its own planning stage, its opponents weren’t silent at all.  The Silver Users Association, companies that use silver for industrial purposes, actually aggressively lobbied the SEC to not approve this new ETF.  The SUA “opposes the creation of a silver ETF because of the concerns that doing so will require the holding of physical silver in allocated accounts, thus removing large amounts of silver from the market.”  It knew SLV would buy physical silver, and fought it so stock capital wouldn’t drive silver higher.  Industrial users know these ETFs are real!

GLD Certainty and Security Fallacies.  Conspiracy theorists always ask how I know that GLD really holds physical gold bullion as advertised.  I don’t know, and neither do they.  Nothing is certain in the financial markets, and the anti-GLD crowd hypocritically tries to hold GLD to a standard that no other investment is held to.  All markets are based on trust, and as investors we can never be certain whether anything is legitimate.

When you buy a gold stock, all you have is the claims of the company.  Anything it tells you about its operations can be misleading (intentionally or unintentionally) or outright lies.  Even if you fly out to its mines and visit them, you can’t tell whether the rock really bears the gold-bearing ore as claimed.  An insider with the intent to defraud can easily fool even a trained geologist or auditor.  You take it on trust, on faith, that the gold stocks you own are really doing what they say they are.  You can’t prove it.

When you buy a physical gold coin, despite what the dealer claims you can never know for sure if it really has all the gold content advertised.  It could be a variety of other metals that are gold-plated.  All reputable dealers have devices to check the mass of coins, but what if the dealer is trying to defraud you?  Or what if the manufacturer of the detection devices is crooked?  You can believe the physical gold coins you buy are the real deal, but without destructively assaying each one (with an assayer you trust) you will never know for sure.  You accept the dealers’ claims of the authenticity of your gold coins on pure faith.

All investing is based on faith, as is our whole modern economy.  We have no choice but to trust and take claims at face value unless proven otherwise.  We all eat food that we never saw grown, transported, or prepared, yet we assume it won’t poison us.  We drive in cars and fly in airplanes we never saw manufactured or tested for quality.  Whether or not GLD actually holds and trades physical gold bullion as claimed can be known with no more certainty than anything else in the investing world.

This certainty fallacy dovetails into the security fallacy.  There is a GLD conspiracy theory claiming it is a secret front for the US government to amass investors’ gold in one place so it can easily be seized at some point.  Can GLD gold be more easily seized than gold coins in your own fist?  Of course, although GLD’s gold is stored in London bank vaults (the gold-trading world capital) and not on sovereign American soil.  So Washington couldn’t seize it instantly, it would have to negotiate with the UK government first.

But are gold coins in your own control perfectly secure?  Of course not.  Thieves can find them.  Even worse, the government can take all your property, your freedom, even your life if it really wants to.  Without property, freedom, or life, gold is totally useless.  Nothing is secure in this world.  There is no investment you can own that can’t be taken away from you by either lawful or unlawful parties backed by the necessary force.  So arguing that something has absolute security while GLD doesn’t is a logical fallacy.

GLD Redemption Fallacy.  Conspiracy theorists argue that GLD is not redeemable for physical gold, and they are absolutely right.  But it was never intended to be.  This argument is about as rational as claiming that since junior gold stocks don’t pay dividends, there is no reason to own them.  Just like junior-gold-stock shareholders don’t buy these hyper-risky speculations as dividend plays, GLD shareholders don’t buy this ETF for redeemability.

Since it was a mere thought in its architects’ minds, GLD was never intended to be a redeemable vehicle.  It is not a gold futures contract, nor a gold note.  It is simply a tracking vehicle.  It was intentionally designed to give stock-market capital easy exposure to the price of gold, a mission it has performed absolutely perfectly.  Investors who would never or could never buy physical gold coins or trade gold futures were given the awesome ability to trade a gold tracker directly within their usual stock accounts.

Gold stocks are not redeemable for gold either, yet conspiracy theorists still happily own them.  Claiming GLD is flawed because you can’t turn it in for gold on demand is pretty silly, because it was never intended to be such a vehicle.  At any time, stock traders can instantly sell GLD (or gold stocks) and take the resulting cash down to their local coin store and buy physical gold coins if they wish.  Redeemability isn’t GLD’s mission.

GLD False Audit Claims.  Conspiracy theorists love to claim that GLD is not audited, and therefore it cannot be trusted.  As a Certified Public Accountant who used to audit publicly-traded companies for one of the world’s top 4 accounting firms, I find this line of theories particularly amusing.  Their underlying assumption is that an audit magically grants that desired certainty that is impossible to find in this world.

If GLD wanted to fool its auditors, it could.  It is very difficult, if not impossible, for even the best auditors to detect fraud if insiders have cleverly colluded to hide it.  And there is little doubt that even if the elite CPA firm of conspiracy theorists’ choice audited GLD, they still wouldn’t believe the results.  Remember that conspiracy theories are held with an emotional almost-religious zeal, new information isn’t considered rationally.

Imagine the ultimate audit for a conspiracy theorist, GLD flies him personally to London to see and touch the gold bars in its vaults.  Even though that person saw lots of gold, he’d claim that he couldn’t count it.  Even if he could count it all, he’d claim that he didn’t know if the bars were solid gold.  Even if he had a huge number of bars destructively assayed, he’d claim that the assayer could be in on the fraud or it could be hiding in the bars not tested.  Like everything in the markets, audits must be taken on faith since they can’t provide certainty.

Provocatively, GLD does actually have third-party audits of its physical gold despite conspiracy theorists’ rants to the contrary.  This ought to be really embarrassing to the conspiracy theorists, as it proves they just parrot old rumors rather than doing original research on their own.  GLD hires Inspectorate, a venerable commodities-testing and inspection company founded in 1927.  Each year it performs one complete physical-bar count and a second random-sample count at a different date.  It certifies the results.

GLD is very transparent, something the conspiracy theorists ignore since secrecy is needed to shroud a conspiracy.  You can go to GLD’s website today and download the actual Inspectorate audit reports.  Provocatively, these reports typically show some anomalies.  With such large and growing holdings, a tiny fraction of new gold bars are inevitably not recorded perfectly from time to time.  It’s funny as the conspiracy theorists, who should seize on these anomalies to trumpet GLD’s flaws, never do.  Why?  They never bother actually looking at the data with their own eyes, it is much easier to parrot rumors than do research.  And to attack GLD’s audit reports, they would first have to embarrassingly admit it is actually audited!

In addition to these audit reports made public in full, each week GLD publishes a comprehensive list of every single one of its gold bars.  Each bar has its serial number, refinery name, gross weight, fine weight, and assay percent listed individually.  The current list of 90,628 gold bars averaging around 400 ounces each is 1620 pages long!  If GLD was a fraud, why would it bother fabricating a 1620-page list of individual bars that its custodial bank certifies?  GLD doesn’t need to publish this, and making this data available to researchers weekly would be a sure way to get caught since fabricated data can’t stand up to external scrutiny for long.  Experts in gold bars and refinery practices could easily detect a fake list of this size.

The truth is GLD is externally audited, its third-party auditors physically count and certify every single bar once a year.  And just so you know, in the auditing profession having one complete physical count a year is standard for publicly-traded companies in most industries.  I used to run these physical counts myself in my audit days.  And each week, GLD provides a comprehensive list with individual details of every bar of gold it holds in trust for its shareholders.  As an ex-auditor, I can’t imagine what else GLD could do to be more transparent.

Despite the conspiracy theorists’ oft-repeated lie, GLD is indeed audited professionally by external auditors specializing in commodities for over 80 years.  This venerable physical-audit firm is finished if it is not telling the truth on GLD, so the stakes are stellar for these auditors.  But no matter who audited GLD, whether a Big 4 CPA firm or the conspiracy theorist himself with his own eyes, it will never be good enough for them.  Why?  They intensely dislike GLD for emotional religious-like reasons, not for logical or rational ones.

Are GLD’s Huge Holdings Plausible?  Another GLD conspiracy theory asserts there is no way GLD can actually be buying as much gold as it claims because of the periodic shortages of physical gold coins.  From time to time the incompetent US Mint shirks its Congressional mandate of producing gold coins in “quantities sufficient to meet public demand”, leading to shortages.  This is known in the gold world as the fabrication bottleneck.

Most individual investors buy gold in one-ounce national coins.  Why?  They are beautiful, readily recognizable (and hence easy to sell) worldwide, and they have a price point small investors can afford.  A single coin for $1200 (not including premiums) or a dozen for $14k are within the reach of small investors.  Unfortunately, with gold investment soaring the national mints can’t keep up with demand.  Even running 24/7, they can’t get enough blanks (coin-sized flat discs of gold) to stamp into official coins.  So supplies of official coins run out periodically and often command high premiums.

Meanwhile GLD, like central banks, deals exclusively in 400-ounce “good-delivery bars”.  At about $480k each at $1200 gold, these are beyond the reach of all but the most successful individual investors.  I have a lot of wealthy clients but have yet to meet any individual who has ever bought a good-delivery bar.  These bars are the standard form gold refineries produce from the dore (partially refined gold and silver) shipped to them by miners.  There has never been a shortage of 400oz bars, they are on the abundant other side of the fabrication bottleneck.

So just because your local coin store doesn’t have Gold Eagles one day doesn’t mean there is a worldwide gold shortage.  That logic is like claiming that since your local grocery store ran out of hamburger one day there must be a global shortage of cows.  The global gold markets, like the meat markets, greatly transcend locality and the specific forms the final finished products take.

GLD’s vast scale makes all forms but 400oz good-delivery bars uneconomical.  As I mentioned above, it actually lists all 90,628 of them individually with all relevant stats.  One-ounce national coins are too scarce, command too high of premiums, and have far-too-high transaction costs for an entity of GLD’s size to deal with.  All of the world’s central banks that own gold also hold this common form of bulk gold produced in great quantity by refineries.

Today GLD’s holdings aren’t far from their all-time high of 1134 metric tons of physical gold bullion in the form of these 400oz bars.  This means that since GLD’s birth in November 2004, it has claimed to purchase about 1130t of physical gold bullion.  But if you can’t buy one-ounce coins at decent prices whenever you want, where did GLD find such vast amounts of 400oz bars?  There are two sources, and each alone is more than sufficient to explain GLD’s holdings and growth.

First, as new gold is mined worldwide most is refined into 400oz bars.  If you want to understand annual global gold production over the last decade, my business partner Scott Wright wrote a great essay on it in July.  Between 2005 and 2008, the only full calendar years of GLD’s existence, the average global gold production ran 2410 tonnes per year, or 9640 tonnes total over this 4-year span.  Does GLD’s 1130t sound outrageous relative to this?  Of course not, it is almost immaterial compared to mine production.

And if there is one thing that gets conspiracy theorists going, it is central-bank gold sales.  Back in August I wrote an essay analyzing the infamous Central Bank Gold Agreement selling programs.  While CBGA years don’t line up exactly with calendar years, in 2005 through 2008 the major CBGA signatory central banks alone sold 1854 tonnes of gold.  All in the form of 400oz good-delivery bars!  So central-bank sales alone provided more than enough gold bullion for GLD to buy even if mined supply had been zero.

Conspiracy theorists also argue that central-bank gold sales are a lot bigger than officially reported, in which case it would be even easier for GLD to buy a measly 1130t of gold in its lifetime.  It is endlessly amusing to see the conspiracy theorists rant about central-bank gold sales and then in the very next breath say there is no way GLD could have bought so much gold because they can’t buy a Gold Eagle themselves.  You have to laugh!  Such inconsistencies are rife when emotions drive market beliefs.

A corollary to these theories is the belief that if GLD had bought so much gold, it would have moved the gold price.  This is funny too.  Since the day GLD was born, the gold price has rallied 175% at best (as of last week).  When GLD launched, the conspiracy theorists claimed its “shorting” would kill the gold bull!  And GLD’s short-term market impact is very apparent too when it is buying or selling large amounts of bullion.  There are plenty of examples of this, but February 2009 is the most obvious.

Over just 5 weeks ending that month, gold surged 22.5% higher.  This was all the more impressive considering the US dollar was actually strengthening over this span, up 3.4%.  So what drove such incredible gold strength in the face of hostile market conditions?  Huge GLD buying.  In these 5 weeks, its holdings grew by 30.1%, or 238 tonnes!  Later when the SEC reports were released, the actual GLD buyer became known.  One of the world’s most-elite hedge funds, loved by Wall Street, bought an 8.7% stake in GLD over that time frame.  The differential buying pressure on GLD shares was so great that this ETF’s custodians had to shunt this large amount of stock-market capital directly into physical gold bullion.

GLD’s Critics’ Hidden Agendas.  Many of the most vocal GLD critics have hidden agendas that they fail to disclose.  I’ve personally dealt with and spoken to quite a few of the most prominent conspiracy theorists in the last decade, and I’ve followed their writings closely.  A big fraction of those proliferating GLD conspiracy theories, either by advancing them themselves or fostering their spread by creating sympathetic Internet venues, are involved in the physical-gold-coin business.  They perceive GLD as competition!

Coin dealers believe GLD is taking business away from traditional physical gold coins.  Thus they have a vested interest in spreading or facilitating the spread of rumors that undermine confidence in this new trading vehicle.  Interestingly rare-coin dealers have always done this same thing to bullion-coin dealers, stoking fears of government confiscation to scare investors away from bullion coins and into numismatic coins (and their far-higher dealer profit margins).  Some gold-coin dealers have personally told me they don’t really believe GLD is a fraud, but being silent on it is good for business.

This is unfortunate though, as GLD bullion buying drives up the gold price which helps their coin businesses.  GLD was never intended to replace physical-coin buying, it was designed to open up an entirely new (and massive) capital market to gold.  Many mutual funds and hedge funds cannot buy gold bullion due to their charters, but they can buy GLD shares which ultimately funnels capital into bullion driving up the gold price.  In order to keep tracking the gold price, GLD has to shunt excess buying and selling pressure directly into gold bullion.  If it doesn’t, it would fail.

And GLD is a gateway drug for many stock investors new to gold, a safe and easy chance to get their feet wet before they graduate to buying physical coins.  I have continuously recommended physical gold coins as the foundation for all investment portfolios since May 2001 when gold traded at $264.  I too prefer physical to paper so I will probably never invest in GLD personally.  But I love it as a trading vehicle.  If I want gold-price exposure, or options on it, for short-term trades, gold coins are just too cumbersome, slow, and expensive to trade.  GLD serves an entirely different market and purpose than physical gold coins, it doesn’t directly compete with them at all.

Along with coin dealers, the other prominent advocates of GLD conspiracy theories are financial commentators who make a living writing about the markets.  Some have chosen to chase the niche market of trafficking in conspiracy theories, a business decision which I certainly respect.  They cater to a small but fiercely-loyal customer base that is willing to pay for all conspiracies, all the time.  Since these commentators’ livelihoods depend on satisfying this particular customer base, conspiracy theories are all they ever discuss.

If you are an aspiring financial commentator or analyst, it is tempting to go after this market because it is so vocal.  But believe me, after a decade in this business and countless millions of dollars of newsletter sales, I know conspiracy theories are not the path to big success.  For every hardcore conspiracy theorist, there are at least 10 contrarian gold investors not into this stuff.  Along with another 1000 mainstream investors.  So if you want to grow a financial business, you will tremendously limit its potential if you stick to the conspiracy-theory game.  It has always been and forever will be a tiny niche market.

Whenever you see someone in business tirelessly advocating conspiracy theories, ponder the vested interest they have.  Are their business interests best served by doing real research and reporting truth, or by pandering to rumormongers?  Do they see GLD as competition and hence have financial reasons to perpetuate the conspiracy theories surrounding it?  In the markets, the desire for financial gains is the motivating force behind every act.

A GLD Conspiracy-Theory Case Study.  Within weeks of GLD’s launch in November 2004, an epic conspiracy theory emerged that threatened to derail this young gold ETF.  A prominent analyst venerated in the gold world, a man who I still respect and admire to this day, started it.  He wrote a bombshell essay claiming GLD was a fraud.  Published on a Sunday, the impact of this was so great that on Tuesday huge differential selling pressure forced GLD’s custodians to liquidate 15% of its holdings in a single day in a flat gold market!

An anonymous amateur conspiracy theorist wrote an e-mail to this prominent analyst.  He discovered that out of 6981 400oz gold bars then listed on GLD’s comprehensive 160-page holdings list, 2.2% had duplicate serial numbers.  Therefore the analyst concluded that GLD was double-counting its gold bars and was clearly a fraud.  Never mind that it was only 2.2%, never mind that there could have been some other explanation, this analyst seized the opportunity to try and destroy the new ETF’s reputation.

His allegations were serious, and I took them seriously.  I downloaded the GLD holdings list myself and analyzed the raw data.  Out of 8306 bars (my analysis used data a week or two newer), I found 78 duplicate serial-number sets (or 156 bars).  This worked out to 1.9%.  As a CPA and former auditor, to me “duplicate” means identical.  But in every single case, bar A and bar B with the same serial number had very different weights!  For example, one set (JMC-UK 2323) weighed 419.208oz fine on bar A and 397.563oz fine on bar B.  If these bars had been double-counted, or duplicated, they obviously wouldn’t all have different weights.

So I wrote our subscribers that day and told them that though these allegations were serious, they simply looked like a clerical error.  Anyone who has worked on importing raw data will tell you it is easy to inadvertently truncate a digit on huge data sets with varying field lengths.  I told our subscribers that in every single case all questioned bars had 4-digit numbers and each set of “duplicates” was from the same refiner.  While I agreed answers were needed, I was very disappointed one of my heroes in this business jumped to the fraud conclusion and shouted “fire” on such flimsy “evidence”.

Within hours of that Zeal Speculator being published, the refiner with 100% of the “duplicate” bars (Johnson Matthey UK) released a formal letter to the World Gold Council explaining the mix up.  JMC-UK stamped all gold bars prior to 2002 with a two-letter code and a number.  Thus a bar could have a BT 1234 serial number in 1999 while a different one had a CT 1234 serial number in 2000.  If the leading prefix was truncated, then the same bar numbers would occur in GLD’s list even for totally different bars.  As I suspected, this was all just a dumb clerical error that was totally meaningless in the grand scheme.

But even though this was all cleared up a few days after his sensational essay, the prominent analyst didn’t recant or apologize for misleading his readers.  Even worse, he didn’t disclose a huge conflict of interest that most people didn’t consider.  This man had founded a transactional paper-gold company that he believed was directly competing with GLD for capital.  He published a rumor he knew, or should have known with 10 minutes of his own research, was totally false.  He single-handedly sparked a huge GLD selloff and a crisis of confidence.  But his motivation wasn’t truth, it was to nefariously damage a competitor’s reputation.  It was very dishonorable.

GLD Conspiracy Theorists’ Reactions.  Since conspiracy theories are so flimsy, even a modicum of research and logic will quickly shoot most of them full of gaping holes.  But instead of actually looking at the research and thinking rationally, conspiracy theorists react by modifying the original theory in an attempt to patch these holes.  They vehemently oppose the Occam’s Razor philosophical maxim stating that the simplest explanation for anything is most likely the correct one.  When assumptions are multiplied beyond necessity, odds are the theory is false.

So when their theories are challenged, they never consider the new facts or calmly debate the new research presented.  You can watch this unfold in real-time in conspiracy-theorist haunts on the Internet once this essay is released.  Without even reading this essay, they will attack me personally rather than considering the ideas and logic I advanced.  They won’t discuss the fabrication bottleneck, or 400oz bars, or GLD’s annual exhaustive physical audit, or its transparency in operations, or its inarguable impact on the gold price when it is engaging in significant buying and selling.

Instead, they’ll yell and scream about Adam Hamilton.  I’ve been one of the most tireless champions of physical-gold investing and gold-stock speculating for a decade.  My painstaking research into what really drives the gold markets, and the resulting trades, have made hundreds of millions (maybe billions) of dollars for our subscribers (who include some prominent hedge-fund and mutual-fund managers).  But because I’ve chosen to believe in hard facts and truth, not rumor, conspiracy theorists want to destroy me.

But the ironic thing about rumors is they ultimately damage the rumormongers far more than the subjects of the rumors.  Rumormongers can fool people for a time, but eventually people realize the rumormongers are never right, are always emotional, and are not helping the people make profitable trades.  Thus rumormongers quickly lose credibility, forcing them to find new suckers and dupes in order to stay afloat.  Truth always prevails in the end.

If you don’t like GLD, don’t buy it!  Problem solved.  But to spread false rumors and known lies about GLD to attempt to take away freedom of choice from other investors is the height of arrogance.  I happen to loathe Asian food with a passion, I wouldn’t eat it if I was starving to death.  But I am still happy it is available for those who enjoy it.  I can always go eat a great beef steak while they indulge in their “exotic delicacies”, just like you can go buy physical gold coins even if someone else buys GLD shares.  Choice is good.

GLD Conspiracy Theories Bad for Gold Psychology.  While entertaining at times, all these GLD conspiracy theories are not harmless.  Knowledgeable investors well-versed in gold can laugh at them, but those new to gold are often scared away by them.  I can’t even tell you how many countless e-mails I’ve received in the last decade from mainstream investors, who were interested in gold, but were hesitant to deploy capital because some silly conspiracy theory they read on the Internet had scared them.

These lies also make prominent mainstream investors and speculators hesitant to speak out about being bullish on gold.  There are elite fund managers and financial analysts made famous on CNBC who like gold, but don’t want to acknowledge it publicly.  Why?  They feel they will take a credibility hit if they are lumped in with the “crazy gold bugs”.  And by that phrase, they mean the shrill and irrational conspiracy theorists who quickly attack and try to defame anyone who doesn’t buy their pet theories hook, line, and sinker.

These malcontents are sabotaging gold’s progress for all of us by falsely claiming GLD is a fraud.  By attacking mainstreamers who talk about gold, they are attempting to silence gold evangelists who can build mainstream interest in this gold bull.  The more stock-market capital that floods into GLD, the higher the gold price will ultimately go.  Thus everyone invested in anything gold-related or silver-related has a huge vested interest in seeing GLD continue to grow.  The more capital that flows into gold bullion, even through GLD, the bigger and more profitable this gold bull will prove to be for all of us.

The Bottom Line.  If theories cannot explain tactical and strategic price action and lead to profitable trades, then they are useless for anything but amusement.  At Zeal we’ve dedicated ourselves to studying the markets relentlessly to find out what is really driving them.  Then we share our findings, and resulting real-world trades, with our subscribers so they too can profit from the fruits of our hard labors.  We have been blessed with great success pursuing this strategy.  We don’t get emotional about anything, we simply study the markets and ride them.

For just $10 a month, you can greatly increase your financial-market knowledge and commodities-stock trading success through our acclaimed monthly Zeal Intelligence newsletter.  Subscribe today and become an informed investor!

While conspiracy theories are entertaining, in my experience they have never helped actual trading results and the real-time accumulation of wealth in this gold bull.  And I’ve followed them closely for a decade now, seeing many theories rise and fall.  These theories are based on rumor, not on fact.  Conspiracy theorists hold to their theories with a religious fervor, which sadly blinds them to their own emotions and seriously hobbles their odds of proving successful in the markets.

That being said, I’ve always thought launching a conspiracy theory would be kind of fun.  So to the brave handful of conspiracy theorists who have read this entire essay, I have a proposal for you.  How about starting one that claims the main reason gold isn’t trading at $1m per ounce today and making us all filthy rich is because Martians with mind-control rays are suppressing the gold price.  They don’t want gold to be strong because the world’s fiat currencies weaken our economies making us ripe for the upcoming Martian invasion.  NASA is hiding the truth, down with the Martian gold-price suppression!

By Adam Hamilton, CPA




Copyright 2000 - 2009 Zeal Research ( www.ZealLLC.com )

Zeal_LLC Archive



21 Oct 10, 03:58
Conspiracy theorists

Thank you for your contribution and in particular explaining the issue regarding duplication of serial numbers of gold bars identified in the ETF audit.

However, your excessive use of terms such "conspiracy theorist" and "fringe" appear to me to be intended as pejorative. Your substantive arguments concerning GLD are strong enough to stand without attempting to marginalise people who claim (often with evidence, in my opinion) that GLD is a flawed investment.

You mention ad hominem attacks in your article; however you appear to get close to being guilty of ad hominem yourself. You also use the straw man fallacy within your article.

Focus on attacking the flawed arguments of your opponents, not on discrediting your opponents.

21 Oct 10, 19:39
let's have a "big boy" conversation

let's have a "big boy" conversation about the word "conspiracy theory"

think it thru

doesn't it mean corruption kept in secrecy to benefit someone at the expense of another?

now there are simple minds who throw the baby out with the bathwater....you hear a conspiracy theory regarding something silly and then it is convenient for you to associate ALL conspiracy theory's like this....when any critical thinking mind over ....6 years old could see that in a world with SO much Fraud....and Greed ....that the financial sector is a fertile ground for conflicts of interest...and rip off's ....scam's....ponzi's etc.

But for some reason these virtual synonyms (for the "c" word) don't bring about that special little knee jerk reaction you get when you "think" the word conspiracy theory to yourself....is that rationale to you?

22 Oct 10, 01:38
Conspiracies are common

The most successful conspiracies are supported by most of the people such as theft of wealth from those that have it and redistributed to those that don't have it by means of taxes and government induced inflation.

Also conspiracists are not God, they do f things up, which is why Lehmans and Bear stearns went bust.


Shelby Moore
22 Oct 10, 08:54
Lehman & Bear Sterns

Lehman and Bear Sterns were bankrupted by design of JP Morgan and the other owners of the Fed.

There is a rough outline of the master plan for bringing the world to a new order. The exact outcomes within this plan are hatched by floating multiple scenarios of destruction, and then adjusting in maximize theft they can do with each crisis they successfully create.

I even have a link to it:


And no it isn't a forgery.

22 Oct 10, 10:18
The Biggest Conspiracy of them All

Give me 100 gold coins and all of your sins are forgiven and you go straight to heaven.

Isn't that what the Pope used to say ?

22 Oct 10, 11:21
"authoritarian followers", "Believers", "dogma adherants"

The author's comments about "conspiracy theorists" are equally applicable to "authoritarian followers", "Believers", "dogma adherants"... which apparently constitute a majority of Americans. Although often true, such articles serve only to divide and disempower us all (We the People) and thus further enable predatory capitalism to have it's way unimpeded by meaningful populist opposition. Truth is never simplistic, always complex but ultimately discoverable (except perhaps the universal unknowable "nature of God").

Shelby Moore
22 Oct 10, 11:28
amen to that

Roman catholic church even banned the discovery that the earth revolved around the sun for until 1759. They put Galileo in prison (where he died) over it.

My view on religion is similar to George Carlin, that we are in "big electron" and that is just the way it is:


In short, I think "God" (or what ever you want to call it), is the "sum of all matter", and explain this in detail in footnote 6 of this document:


Every belief system is a religion, even atheism is a religion, even science is religion.

And the churches are part of the Great Harlot corruption system that mankind demands on itself. Jesus even said as documented in Matthew 6:5, that we should not go to church like babbling idiots.

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