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Posted: Aug 14 2009 By: Jim Sinclair Post Edited: August 14, 2009 at 4:49 pm

Filed under: General Editorial

Dear CIGAs,

ETFs in general deal in paper gold and not in the hard stuff. That is clear as their rise and fall in position simply cannot be either in the cash market or listed futures market. The volume screams that conclusion.

The only inviting conclusion is that producers and gold banks have made huge forward sales in the form of off exchange OTC short of gold derivatives to the ETFs they manage.

This is one of the major reasons the gold banks attempt to cap gold at $960.

COT, in its capping activities, will be defeated the same way they were defeated in the 1970s. That is when the COT takes on governments while not knowing it, like now.

The ETF problem will come as a result of any paper exchange in gold failing or finding it publicly difficult to deliver on their paper contracts in physical gold. Yes, in gold the listed exchanges will bring down the OTC short of gold to the ETFs.

Should this occur, and it will in time on the COMEX, concern over the paper gold at the ETFs will cause significant shifting into the physical metal. Because of the small size of the physical precious metals market versus the money coming out of precious metals ETFs, big money will seek promising precious metals shares, especially those on the cutting edge with leverage against the underlying assets.

Because many ETFs in precious metals function as bullion alternatives for buyers that cannot buy the bullion itself, this huge money will seek the precious metals shares on the cutting edge of doing business.

As in the 70s, the juniors underperformed until the later years then went ballistic as a group. I firmly believe specialized unique companies will do so again.

The following article speaks to the correctness of the above.

Now the competitive edge in the ETF market internationally in precious metals is a prospectus declaring PHYSICAL only.

ETFS’s Japanese Expansion: 5 New Precious Metal Funds
by: Michael Johnston August 13, 2009

London-based ETF Securities Ltd. continues to expand its line of commodity ETFs at a torrid pace, announcing this week that five ETFs holding precious metals will begin trading on the Tokyo Stock Exchange later this month. The new funds are:

Physical Gold
Physical Silver
Physical Platinum
Physical Palladium
Physical Precious Metals Basket
Rapid Growth

ETF Securities is perhaps best known as the firm behind the launch of the world’s first gold ETC in 2003 and first oil ETC in 2005, but the company has been expanding quickly beyond the UK in recent months.

In July, ETFS made launched its first U.S.-listed product, the ETFS Silver Trust (SIVR). Driven by a best-in-class expense ratio (0.30% compared to 0.50% for iShares’ SLV), enhanced transparency, and the firm’s reputation for expertise in physically-backed exchange-traded products, SIVR was an immediate hit with investors, surpassing the $80 million in assets mark within a few weeks of launch and now approaching a market capitalization of $100 million.

And perhaps more importantly for traders, SIVR’s daily volume has consistently topped 100,000 shares over the last week, eliminating any worries over liquidity that frequently plague new ETF issues.

By comparison, the iShares Emerging Market Infrastructure Fund (EMIF), which launched more than a month before SIVR, has a typical daily volume below 10,000 shares. I realize these are apples and oranges (a niche equity fund compared to a fund holding a widely-traded commodity), but EMIF’s volumes are more typical of recently-launched ETFs in their first months of trading, and puts the incredible start of SIVR into perspective a bit.

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