Every day and everywhere one reads criticism of the large gold ETFs. Most of it is understandably written by competitors in selling gold or the management or promotion of gold as an investment. But increasingly a lot of the criticism verges on (or over) the line from analysis into slander and accusations of criminal behavior on the part of the gold ETFs.
First my own history. I am far from being a gold-hater. Since the 1960's I have been a gold stock investor, and I have owned gold since it became legal to own it in the US in 1975. In the 1990's I wrote a gold advisory, Gold Fax Letter, for several years. Even in good economic times I believe that gold is a good investment for perhaps 5-10% of assets as a diversifier and volatility moderator. In bad times I personally feel gold should be a higher per cent of total portfolio.
During the later 1990's gold experienced a crushing bear market. There arose a vocal group who claimed it was all due to market manipulation. At first they got little traction, but gradually most of the retail gold newsletter writers fell into line as supporters of the manipulation conspiracy. The "conspiracy" consisted primarily of time-honored and totally legal forward hedging by gold mining companies, and borrowing gold by banks and hedge funds and others at very low interest rates (the gold "lease" rate) and selling the gold to finance other investments earning more than gold. Both of these proedures were competely legal and extremely wise during three years (and more) of falling prices.
Gold miners wanted to guarantee "today's" price on gold they would mine next year or in a few years. This has been done by farmers and other producers for millennia. It's why commodity futures exchanges were authorized in the 1800's in the US. Futures were and are a way for producers to exchange their price risk with speculative risk takers. Hedging can also be done over the counter (off-exchange) by banks who are often loaning money to miners and farmers for specific crop or mine production years and see price hedging as insurance for their loans.
Also as gold prices fell approximately 40% from early 1996 to mid 1999, central bankers, and others who were long term gold holders, sold some of their gold to diversify into "better" investments. One can ceretainly question their judgment, but their gold reserves were dropping swiftly in value while other reserves were rising rapidly. But they were lumped in as manipulators by the new conspiracy crowd. From 1997-99 US Treasury bonds rose 29% and the US Dollar Index rose 50% from 1995 to 2000. All the incentives to de-emphasize gold were there. Some central banks leased out their gold instead of selling it in expectation of not only the interest received but of getting the gold back.
