"It Hasn't Been This Bad Since The Viking Age": Dry Bulk CEO Warns Of Bankruptcy Tsunami, Counterparty Risk

When global trade plummets (and it IS collapsing, despite political rhetoric), companies file bankruptcy, banks collapse, people lose their jobs, and people starve.  Result:  war.

http://www.zerohedge.com/news/2016-03-03/dry-bulk-ceo-warns-bankruptcy-tsunami-we-havent-seen-market-bad-viking-age

The role of GLD and SLV

http://www.goldmoney.com/gold-research/alasdair-macleod/the-role-of-gld-and-slv.html?gmrefcode=gata

Selling More CDS on Europe Debt Raises Risk for U.S. Banks

This is why Wall Street banks will need another bailout:  unmitigated and unaccounted for counterparty risk.

http://www.bloomberg.com/news/2011-11-01/selling-more-insurance-on-shaky-european-debt-raises-risk-for-u-s-banks.html

Two words:  Lehman and AIG.

Silence over tri-party repo market

http://www.cnbc.com/id/39340131/

The potential perils of paper gold and silver ETF's

I've blogged on this topic several times, and it's worth revisiting.

http://dailyreckoning.com/golden-shell-games/

The gist of the article states that the GLD and SLV ETF's are good proxies for the spot price of their respective precious metals, but in the event of "failures to deliver" physical gold and silver, the prices between the ETF's (paper contracts) and the physical prices would decouple, as the physical shortage would cause the prices of the actual metals to soar, while the ETF prices would languish. The reason is the precious metals COMEX futures contracts and ETF's are not backed by allocated bullion. They are derivatives, much like mortgage-backed securities were derivatives of the actual mortgages themselves. Buyers of said derivatives lost everything when subprime home borrowers defaulted on their mortgages. Holders of COMEX precious metals futures contracts, and the GLD and SLV ETF's would be similarly exposed to counterparty risks.

So if you believe you can trade the fluctuations of gold and silver prices, then the GLD and SLV ETF's may be a cost-effective trading vehicle. But if you are looking to hedge against inflation, currency debasement, and/or financial crisis, owning physical gold and silver may be a safer play, despite hefty premiums.

See disclaimers in the side bar.

Disclosure: no position in GLD or SLV.

GLD vs. physical gold

The Exchange-Traded Fund (ETF) GLD has been a popular vehicle for investors interested in participating in gold price appreciation--and as a hedge against inflation and financial crisis. But there is a potential downside, as previous mentioned. According to James Turk:

“For now, gold is marching to a different drummer,” says Mr Turk. “We are seeing a scramble for physical metal, and that demand is driving gold higher. Buyers are opting for physical gold, not paper gold.”

He points out that when gold was trading at $870 an ounce back in early April, the SPDR Gold Trust – the world’s largest gold exchange-traded fund – recorded ownership of 1,127 tonnes of the metal. Since then, SPDR’s holding has shrunk by 20 tonnes, but gold has climbed by more than $200. “It is a clear example that buyers want physical gold and not paper gold. They are opting for the real thing, not a substitute.

“Why? Because risk aversion has returned to centre stage as worries about bank solvency have resurfaced. It is possible we have been in the eye of the hurricane. Physical gold does not have counterparty risk, which makes it the safest haven of all.”

With a shortage of physical gold, many doubt the gold paper certificates are actually backed by physical inventory, with matching serial numbers.

Of course, there are disadvantages of owning physical gold--especially with bullion, including safe storage and security. But in times of extreme financial crisis, claiming that physical gold may be difficult--if it doesn't exist.