kiyakker , GWTW

Please understand I am not trying to quarrel here. I am just expressing my opinion. Opinions differ, that's what makes markets. We all talk and share info so that we can select what fits our worldview at any given moment in time.

The stated intention is to have the companies shares to provide for 80% of the backing of the fund as per the clip from GWTW's posted reference. But note the concerns of the author below very carefully.

My contention, even beyond the derivative aspect is that 20% of the money invested will not be going into the shares but will be played with in other areas. This is a loss to the shareholders as that money will not be going into the stock price. So that's point 1 (the point of my original post). Perhaps the interest created by the fund will overpower that negative in the initial months of time passage. Might it kick off interest in the sector again; absolutely. But eventually we will have somewhat less money in the shares as some will be part of that 20% (or possibly 100%) in the fund.

When GLD first came out its stated intention was to have the fund 100% backed by gold and large investors could off take their shares in physical. Then people got to reading the prospectus and noted the convoluted path of custodians and sub custodians and the inability to do an audit because the sub custodians did not have to be named. Many today question just how much gold the ETF is actually holding, who has it, can it be audited, is it used to cover "fail to delivers" on the metals exchanges etc. It is a can of worms which may be fresh and useful or old and very (if you have been a fisherman) smelly.

Here are the concerns of the author (mine echo his)

Unfortunately, the “small print” in the prospectus also gives potential investors in this fund a good reason for worry: the intention of the fund to invest in “derivative” investments. This category of investments is described as “swaps, options, warrants, futures contracts, and currency forwards.” The prospectus warns that investments in these instruments could result in losses exceeding 100% of the amount invested.

It gets worse. The fund intends to have at least 80% of its capital invested in the core assets around which the fund is based. However, this does not mean it will have at least 80% of those dollars invested in the shares of these companies. The company stated that these “derivatives” would be considered part of the core assets of this fund (meaning part of that 80% core). This means that theoretically the fund could hold 0% mining shares, and all derivative instruments. (underlining mine)

So in addition to the 20% they acknowledge will not go into the shares you have the possibility that nothing will go into the shares. The prospectus allows these people to take investors money and do with it whatever they please while calling it a junior gold miners fund. This could be on the up and up and a good thing. I just know in my gut that the financers and bankers are still doing whatever they can to promote paper over gold and until that mentality is overcome by necessity on their part I won't trust them.

If someone made an old style mutual fund where money coming in did one thing and one thing only...bought shares according to an established index weighting, I would applaud it and be willing to invest in it. But since they include these other possibilities, I can only imagine they intend to use them. Further, since they are in "small print" I expect they are to be the real and true basis for forming the fund. "The fund intends..." how about, "The fund is required to at all times have..."

If you are among the many that suspect all is not well with GLD, then there is every reason to be suspicious and cautious re this new fund.

P.