This may not seem like an especially dire event, especially if the funds involved were smaller, and thus had a lower profile than some of the mega-bullion funds in the marketplace. However, consider the inevitable human reaction whenever something bad happens to an investment very similar to one of our own.
All holders of bullion funds (and bullion ETFs) would immediately take a much harder look at their own holdings, to see if their own investments faced similar (or different) vulnerabilities. Here is where some seemingly insignificant collapse of a minor bullion fund/ETF could quickly mushroom into a market-ending event.
Regular readers are familiar with my frequent criticisms of the two largest bullion funds in the world: the bullion ETFs known (by their U.S. trading symbols) as SPDR Gold ETF (GLD) and iShares Silver Trust (SLV). My suspicions here are obvious: Any close scrutiny of either of these two funds reveals a totally preposterous business model -- fraught with massive counterparty risk for anyone foolish enough to hold units in either fund.
While readers looking for a more detailed critique can refer to previous commentaries (such as
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