Is There Fraud at Precious Metals Exchange Traded Funds?

I ran across an interesting report (the link is included below) that discusses irregularities at two of the world’s largest silver exchange traded funds.  They claim to have run across duplicate entries for silver bars based upon manufacturer, serial numbers, and bar weight.  They even found some duplicates between different silver ETFs.  I don’t know if you believe in conspiracy theories or not, but it sure makes for interesting reading.  In the age of Enron, Worldcom, Madoff, and Stanford, it pays to know what your are actually investing in.

One should always know the risks when investing.  Obviously, any investment may lose money based upon price, but now it pays to examine risk to a deeper level.  Many investors in real estate bought with the understanding that there has never been a nationwide real estate recession.  That may have been true until now.  Madoff was able to defraud investors for the better part of a decade or maybe even longer.

Now, you have to ask serious questions about what individual or company is holding your assets.  You have to consider the impact of worldwide political events, currency fluctuations, and governmental regulations and interventions which could unilaterally wipe out your investment.  Diversification across asset classes has always been wise advice.  Now, diversification across holders of those assets may be necessary.

This gets us back to the precious metals exchange traded funds.  These are mutual funds that pool investors’ money to buy physical gold and silver holding it on behalf of those investors and issuing paper shares.  It doesn’t take much imagination or knowledge of history to understand that the potential exists to issue more shares than actual physical gold or silver sitting in the vaults.

Why would someone invest in precious metals? There can be several reasons. Of course, speculation and making money can be one reason. But others might want to purchase gold or silver as a hedge against inflation or geopolitical concerns. For these individuals, the ETFs may not be the wisest choice. Instead, owning physical gold and silver would be better. The typical reason for these folks to own physical gold is not necessarily to make money but to preserve purchasing power. If you are considering investing in gold or silver, you should know what the different methods and risks are especially with the ETFs.