They will eventually play the 'rogue trader' card to bury the story. What probably happened is that the gold was 'leased' out to generate income on the assumption that it could be bought back or returned later when gold was lower in value, and that probably worked out well for a few years but then went off the rails and has been covered up ever since. Now that someone actually had the balls to audit the mint, they can no longer cover up the loss and it will be explained away and charged to the tax-payers.

Now I wonder if any of the 'missing' gold is actually pooled account gold held in trust for spec buyers through Kitco. I wonder if the story was leaked on purpose to create a red herring rather than have a default on the pooled accounts and thus have doubt surface about all the other certificates and schemes where gold is supposed to be held in trust for investors. I bet most of the ETFs are not going to let that mistake of an audit being done happen to them. It is far better to pretend all is well than allow someone to sniff around and break the story that its a big scam.

The ETFs are their own worst enemies. If they are on the level and totally legit, and have every ounce of gold they claim, with no liabilities or potential default, then why not throw the doors wide open and invite full and public accounting of their holdings? Why would they structure the terms of their offering such that they do not specifically prohibit derivitives that may encumber gold ownership, and why is the contract presented as a lobster trap of legal loopholes that appear to protect everyone except the 'owners' of the bullion that actually fund the ETFs? Why are the holdings not held in trust, fully segregated from the ownership of the fund custodian? Investors that participate in these vehicles should verify the ETFs they purchase have made satisfactory arrangements and clear covenants that protect the ownership of the gold from abuse by the custodians, and reduce the potential for the kind of malarky that is going on everyday at the COMEX.

If you dont have total control and custody of your bullion, then there is the chance that you are far down the list of 'creditors' who would be in line to be paid out if the ETF goes sour. Is the price of convenience worth the potential for total loss through the incompetence or fraud of others?

cheers!

mike