Wednesday, December 3, 2008

Cash4Gold - How Does COMEX Operate?

Barclays Global Investors (BGI) announced last week that it would be transferring shares from the NYSEAlternext US LLC to the NYSE Arcalisting and trading platform on December 4, 2008. BGI serves as the trustee for COMEX Gold Trust.

Barclays, as trustee for COMEX Gold trust, is one of the world’s largest institutional asset managers. The shares of COMEX, which come in units called “baskets”, are created to reflect the market price of gold, although at any given time, the shares may be slightly higher or lower than the current market price of gold.

Declines in the gold price can come from a couple of different factors:
(1) Large sales of holdings. There are instances where governments, banks, and other financial institutions are forced to sell off physical gold.
(2) Change in the level of hedge activity.
(3) Significant change in speculators or investors of gold

The Gold Trust works as a passive investment vehicle, meaning there are certain circumstances where gold might be physically lost or damaged, and the trust is unable to recover the loss. Shares of COMEX are not insured by FDIC, insurers or government agency and are treated like investments on the stock market.

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