Cyprus Confiscates Gold!

Mark Grant, writing for ZeroHedge, reports on a move that precious metals holders everywhere have long feared.

"Please note that until yesterday all depositors in Cypriot banks were insured up to the value of €100,000 with any one bank. Today that solemn governmental promise has been shown for what it is; a lie. Worse and actually far worse and quite scary in fact is that the European Union and the European Central Bank and the IMF has not just allowed violation of the deposit insurance but demanded it. One thing is certain here; if they can void deposit insurance in Cyprus then they can void it in any country in Europe. Further; if they can void deposit insurance then they can void bond covenants with the scratch of a pen on paper. Nothing now; Nothing is safe!"

What's that   You missed the part about gold confiscation?  So did I, and that's the point.  Cash in a bank is a remarkably easy target for politicians and bureaucrats eager for a fix.  To be clear, so are ETFs purporting to hold gold, and even mining shares.

When things get bad, really bad, the safest counter-party is no counter-party at all.  Parents, it's 10:00.  Do you know where your gold is?

True and False on Gold ETFs

Sometimes the thing we see written in the press are so stunning that they almost defy comprehension.  In this snippet, The Globe and Mail manages to score a perfect 10 in terms of truth, and second perfect 10 in terms of anti-truth in just two sentences.

"Exchange traded funds have transformed the gold market. Since the first fund was launched nearly a decade ago, the products have become so successful in offering a simple way for investors to buy physical gold that they have acquired the nickname “the people’s central bank.”"

First, the truth.  Gold ETFs have changed the gold market.  There is no denying that at a time when billions are invested in what is considered gold by way of these vehicles.  (I wonder, in fact, if ETFs are responsible for the sometimes lackluster performance of gold stocks.)

I'll admit it.  I own a bit of Sprott's PHYS and PSLV--nervously.

But the anti-truth that follows is astonishing in its audacity.  ". . . the products have become so successful in offering a simple way for investors to buy physical gold."  Really?  Physical gold?  Let me assure you, that while I hold some PHYS, Sprott claims it is 100% backed by gold, that ownership is utterly different than a Maple Leaf, Kruggerand, or Gold Eagle in my control.

Never forget that in the worst case situation, gold is favored because there is no counter-party risk.  Gold ETFs may perform in a similar fashion to gold for a day, a month, or a thousand years.  Still, the counter-party risk will remain.

Jim Willie: Careful With Those Gold Stocks!

In this great post on SilverDoctors.com, Jim Willie covers a broad range of topics, including the imminent demise of Morgan Stanley, and the possible rehypothecation of hundreds of thousands of accounts.  As if that's not scary enough, he also sees a number of large risks for mining shares.

"The hostile positions of miners versus the corporate firms is becoming stark and clear. The unfortunate outcome is that gold and silver mine output will surely go into worse decline. The Jackass forecast is that from the global mine output factor alone, the physical precious metal prices will rise, while the mining stock share prices will fall. Output risk joins jurisdiction risk and dilution risk for the mining companies. For every mining stock winner, expect 20 to 30 losers."

I'm counting on broad diversification to protect me from jurisdiction risk, but I have to admit that when it comes to dilution risk, I may be swimming naked.  Are you?