Bar Fight in the Gold Community

by David Walker. December 8, 2004

An Open Letter to GATA's Chris Powell

December 7, 2004

I was considering a donation to GATA recently and just as I was about to write the check, Murphy and Turk took a walk on the wild side and started bashing the new ETF gold trust GLD.

This is unfortunate as Bill Murphy had forever complained how the WGC did not know what they were doing, as they spent their money promoting gold jewelry and if they had any sense, the WGC's money would be better off spent promoting gold as an investment.

Well, the WGC did come around and started promoting gold as an investment, not only in the US but in several other world markets as well. To date, the WGC has been extremely successful in their marketing efforts. For this they should be commended.

The recent attacks on GLD have been unwarranted and are irresponsible. Unfortunately Turk in his quest for sensationalism and perhaps in protecting his gold gram product has stepped over the line. The GLD method of owning gold brings in a whole new segment of investors who are wary of the risks of gold mining stocks and don't want the hassle of direct ownership.

GATA should be embracing this new gold product, not fighting it and raising red flags. It is my belief that the gold trust is the best thing that happened since January 1, 1975, when Americans were allowed to own gold. As such, you should get your facts straight before drawing swords.

At this point Chris, you may be the last remaining General in the GATA camp retaining position to sway the current level of conspiracy theory surrounding GLD, which means that it is time to address GATA's concerns in the order they are listed in yesterday's press release.

Question: Why does the bullion fund list ownership of duplicate gold bars?

Answer: There are no duplicate gold bars, only duplicate numbers. The bars in question are JM bars and JM has reset the stamp spools several times. While the serial numbers of the bars themselves are the same, the dates of manufacture are different, as is the weight of the bars. The serial number stamps only go out to 5 digits and thus on a 400 ounce bar, only 124 tonnes could be cast before the spools have to be reset. It is a common practice for the refiner to reset the spools but there will not be identical numbers having the same date of manufacture.

Question: Why have all the custodians and potential custodians of the fund's gold not been identified?

Answer: They have and it is included in the prospectus as follows:

"The sub custodians selected and used by the Custodian as of the date of this prospectus are: the Bank of England, The Bank of Nova Scotia (ScotiaMocatta), Deutsche Bank AG, JPMorgan Chase Bank, and UBS AG. The Allocated Bullion Account Agreement provides that the Custodian will notify the Trustee if it selects any additional sub custodians or stops using any sub custodian it has previously selected."

Note that the subs are not street corner merchants but 5 of the eight clearing members of the LMBA. It is intended that all of the gold in the allocated account be held in HSBC's vault, however we must remember that GLD is a continuously offered trust and must prepare for unforeseen eventualities that may necessitate storage in other locations other than HSBC's vault. The listing of potential sub custodians is to cover situations that may arise.

Currently all the bars are in custody in HSBC's vaults.

Question: Why is the fund refusing to let its gold holdings be fully and publicly audited?

Answer: They are not. If 100% of the gold bars are held directly by the Custodian which is the current situation, then there is provision provided for a 100% audit by the trust as found in the SEC filings:

"The Trustee may, upon reasonable notice, visit the Custodian's premises up to twice a year and examine the Trust's gold held there and the Custodian's records concerning the Trust Allocated Account and the Trust Unallocated Account."

However in the event a sub custodian is used it would be up to the Custodian to audit sub custodians per any audit provisions between the Custodian and the sub custodian. Any gold held would be in allocated form, thus property rights to the gold have been established. Since it is intended that HSBC has 100% control, all gold would be subject to 100% audit directly by the Trust's auditors.

Question: Is any of the fund's gold being leased, made available for leasing, or encumbered in any way?

Answer: All gold except a minuscule amount not to exceed 430 ounces is held in allocated accounts by the Custodian. Ownership of the gold has been documented and it is against the law to lend, lease or encumber in any way someone else's property.

The prospectus has gone through great pains to disclose every conceivable risk regardless of how remote that risk. If the trust was going to lend or lease the gold, the risk associated with such activities would have to be included in the prospectus as well. Since no risks are listed in this regard, the Trust is unable to lend or lease the gold where this risk would be assumed. Further to that, if the gold were to be lent or leased, there would be income derived which would be mentioned in the prospectus. The lack of mention of either risk or income coupled with the fact that it is illegal to encumber someone else's property without their permission is reason enough to say that it would not be done.

GATA seems to think that because they did not specifically say that the gold would not be leased, lent etc. that it might or could happen. In the spirit of full disclosure, the absence of evidence that they will or can is missing.

Unfortunately since GLD is a continuously offered trust, GLD cannot publicly respond to the current allegations.

Question: Exactly what is the fund's relationship with the Bank of England, a major lessor of gold?

Answer: The Fund has no relationship with the Bank of England. The Bank of England was listed as a POTENTIAL sub custodian that the Custodian MIGHT use in the normal course of business. Certainly HSBC being the largest LBMA member would more than likely have dealings with the BoE from time to time.

During my conversation with the Fund representative Mr . David Smith, he mentioned that there has been talk of discontinuing the BoE as a POTENTIAL sub custodian.

All of these questions could have been answered by digging through the prospectus and calling the Fund for clarification. Apparently this was not done before riling certain members of the gold bug community on the vehicle that has the potential to change the gold market and create demand by reaching a new clientele.

I hope that GATA has the ability to reevaluate it's position on GLD before further damage is caused to investors that would benefit via GLD's ability to accumulate gold in the vaults.

Regards,

David Walker
oneinthesame @ hotmail.com

ADDENDUM

Tim Wood has obtained a copy of the letter from Johnson Matthey to the World Gold Council regarding the numbering of gold bars at the refinery. Next... the follow is the list of duplicate serial numbered gold bars... FYI... serial number is not the defining info....serial numbers are recycled...dates & weights plus serial number identify the bar. Turk should have known than refiners like Johnson/Matthey recycle serial numbers...the numbering device has only 5 digits. Anyway... the list: Gold bars 74 Duplicates found.

1143 JMC-UK 393.700 0.9981 392.952
1143 JMC-UK 398.225 0.9968 396.950

1144 JMC-UK 380.125 0.9981 379.402
1144 JMC-UK 403.250 0.9968 401.959

1146 JMC-UK 409.250 0.9981 408.472
1146 JMC-UK 408.500 0.9968 407.192

1147 JMC-UK 413.100 0.9977 412.149
1147 JMC-UK 404.500 0.9968 403.205

1148 JMC-UK 409.175 0.9977 408.233
1148 JMC-UK 388.100 0.9968 386.858

1149 JMC-UK 399.375 0.9977 398.456
1149 JMC-UK 395.150 0.9968 393.885

1150 JMC-UK 391.775 0.9977 390.874
1150 JMC-UK 406.550 0.9968 405.249

1151 JMC-UK 396.875 0.9977 395.962
1151 JMC-UK 388.225 0.9968 386.982

1152 JMC-UK 410.275 0.9977 409.331
1152 JMC-UK 400.350 0.9968 399.068

1153 JMC-UK 408.175 0.9977 407.236
1153 JMC-UK 402.475 0.9968 401.187

1154 JMC-UK 400.350 0.9977 399.429
1154 JMC-UK 413.950 0.9968 412.625

1155 JMC-UK 404.575 0.9977 403.644
1155 JMC-UK 405.175 0.9968 403.878

1156 JMC-UK 413.650 0.9977 412.698
1156 JMC-UK 401.725 0.9968 400.439

1157 JMC-UK 406.950 0.9977 406.014
1157 JMC-UK 390.675 0.9968 389.424

1158 JMC-UK 404.100 0.9977 403.170
1158 JMC-UK 398.825 0.9968 397.548

1159 JMC-UK 400.100 0.9977 399.179
1159 JMC-UK 411.800 0.9968 410.482

1160 JMC-UK 408.225 0.9977 407.286
1160 JMC-UK 399.125 0.9968 397.847

1161 JMC-UK 406.575 0.9977 405.639
1161 JMC-UK 398.800 0.9968 397.523

1162 JMC-UK 410.650 0.9977 409.705
1162 JMC-UK 418.375 0.9968 417.036

1163 JMC-UK 401.425 0.9977 400.501
1163 JMC-UK 387.200 0.9956 385.496

1164 JMC-UK 407.875 0.9977 406.936
1164 JMC-UK 402.725 0.9956 400.953

1165 JMC-UK 405.375 0.9977 404.442
1165 JMC-UK 415.475 0.9956 413.647

1167 JMC-UK 398.750 0.9977 397.832
1167 JMC-UK 415.325 0.9956 413.497

1168 JMC-UK 399.675 0.9980 398.875
1168 JMC-UK 407.900 0.9956 406.105

1169 JMC-UK 410.775 0.9980 409.953
1169 JMC-UK 403.050 0.9956 401.276

1170 JMC-UK 391.750 0.9980 390.966
1170 JMC-UK 408.050 0.9956 406.254

1171 JMC-UK 410.500 0.9980 409.679
1171 JMC-UK 405.100 0.9956 403.317

1172 JMC-UK 396.225 0.9980 395.432
1172 JMC-UK 403.200 0.9956 401.426

1173 JMC-UK 391.825 0.9980 391.041
1173 JMC-UK 395.850 0.9956 394.108

1174 JMC-UK 408.425 0.9980 407.608
1174 JMC-UK 394.425 0.9956 392.689

1175 JMC-UK 412.400 0.9980 411.575
1175 JMC-UK 413.375 0.9956 411.556

1176 JMC-UK 408.725 0.9980 407.907
1176 JMC-UK 396.150 0.9956 394.407

1177 JMC-UK 393.775 0.9980 392.987
1177 JMC-UK 412.150 0.9956 410.336

1178 JMC-UK 411.500 0.9980 410.677
1178 JMC-UK 415.000 0.9956 413.174

1179 JMC-UK 408.900 0.9980 408.082
1179 JMC-UK 400.375 0.9956 398.613

1180 JMC-UK 403.925 0.9980 403.117
1180 JMC-UK 392.050 0.9956 390.325

1181 JMC-UK 410.050 0.9980 409.230
1181 JMC-UK 401.375 0.9956 399.609

2292 JMC-UK 419.650 0.9975 418.600
2292 JMC-UK 407.225 0.9999 407.184

2293 JMC-UK 413.925 0.9975 412.890
2293 JMC-UK 405.800 0.9999 405.759

2294 JMC-UK 410.475 0.9975 409.448
2294 JMC-UK 415.125 0.9999 415.083

2295 JMC-UK 428.625 0.9975 427.553
2295 JMC-UK 404.525 0.9999 404.484

2296 JMC-UK 397.800 0.9975 396.805
2296 JMC-UK 415.575 0.9999 415.533

2297 JMC-UK 415.125 0.9975 414.087
2297 JMC-UK 401.500 0.9999 401.459

2298 JMC-UK 406.300 0.9975 405.284
2298 JMC-UK 400.300 0.9999 400.260

2299 JMC-UK 411.725 0.9975 410.695
2299 JMC-UK 393.675 0.9999 393.635

2300 JMC-UK 410.700 0.9975 409.673
2300 JMC-UK 422.975 0.9999 422.932

2301 JMC-UK 416.400 0.9975 415.359
2301 JMC-UK 420.600 0.9999 420.558

2302 JMC-UK 378.575 0.9975 377.628
2302 JMC-UK 406.000 0.9999 405.959

2303 JMC-UK 402.175 0.9975 401.169
2303 JMC-UK 407.150 0.9999 407.109

2304 JMC-UK 406.375 0.9975 405.359
2304 JMC-UK 413.175 0.9999 413.133

2305 JMC-UK 398.650 0.9975 397.653
2305 JMC-UK 400.025 0.9999 399.985

2306 JMC-UK 409.050 0.9975 408.027
2306 JMC-UK 416.575 0.9999 416.533

2307 JMC-UK 413.850 0.9975 412.815
2307 JMC-UK 414.875 0.9999 414.833

2308 JMC-UK 394.375 0.9975 393.389
2308 JMC-UK 394.150 0.9999 394.110

2309 JMC-UK 402.675 0.9975 401.668
2309 JMC-UK 388.000 0.9999 387.961

2310 JMC-UK 396.275 0.9975 395.284
2310 JMC-UK 384.325 0.9999 384.286

2311 JMC-UK 386.075 0.9974 385.071
2311 JMC-UK 406.375 0.9999 406.334

2312 JMC-UK 407.075 0.9974 406.016
2312 JMC-UK 413.500 0.9999 413.458

2314 JMC-UK 387.200 0.9974 386.193
2314 JMC-UK 401.875 0.9999 401.834

2315 JMC-UK 401.050 0.9974 400.007
2315 JMC-UK 386.075 0.9999 386.036

2316 JMC-UK 403.225 0.9974 402.176
2316 JMC-UK 414.025 0.9999 413.983

2317 JMC-UK 399.500 0.9974 398.461
2317 JMC-UK 421.150 0.9999 421.107

2318 JMC-UK 420.650 0.9974 419.556
2318 JMC-UK 396.775 0.9999 396.735

2319 JMC-UK 397.700 0.9974 396.666
2319 JMC-UK 383.225 0.9999 383.186

2320 JMC-UK 403.450 0.9974 402.401
2320 JMC-UK 403.750 0.9999 403.709

2321 JMC-UK 398.300 0.9974 397.264
2321 JMC-UK 396.100 0.9999 396.060

2322 JMC-UK 407.175 0.9974 406.116
2322 JMC-UK 381.875 0.9999 381.836

2323 JMC-UK 398.600 0.9974 397.563
2323 JMC-UK 419.250 0.9999 419.208

2324 JMC-UK 402.475 0.9974 401.428
2324 JMC-UK 390.625 0.9999 390.586

2325 JMC-UK 399.275 0.9974 398.236
2325 JMC-UK 387.275 0.9999 387.236

2326 JMC-UK 405.925 0.9974 404.869
2326 JMC-UK 397.475 0.9999 397.435

2328 JMC-UK 395.125 0.9999 395.085
2328 JMC-UK 407.950 0.9974 406.889

2329 JMC-UK 412.275 0.9974 411.203
2329 JMC-UK 375.125 0.9999 375.087

2330 JMC-UK 396.175 0.9974 395.145
2330 JMC-UK 402.175 0.9999 402.134

Contact Information

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