Market Overview

Gold and Silver Dealer Kitco Under Investigation

On Thursday, Canadian based precious metals dealer Kitco was raided by Montreal police on charges of tax fraud. According to authorities, the company was engaged in a system of repetitive false billing and tax evasion.

According to CBCNews, Kitco has denied any wrong doing.

Since its inception in the late 1970s, Kitco has become a major dealer in precious metals in North America. It has offices in the United States and Canada, and runs one of the most popular precious metal websites on the internet.

The raid comes at an interesting time. While gold has technically been in a bull-run for over a decade, the metal has most strongly appreciated in price since 2008, and has increased in price most significantly within the past year.

The rising prices may mean more transactions, and more potential for fraud. Could the Kitco scandal foreshadow what's to come?

Action Items

Bullish: Traders who believe that Kitco's scandal foreshadows future weakness in the gold market might want to consider the following trades:

  • Short SPDR Gold Trust (NYSE: GLD). GLD attempts to return a value corresponding to the general price of gold. If gold tanks, GLD may as well.
  • Buy PowerShares DB US Dollar Bullish Index (NYSE: UUP). Investors running from gold may flee to the U.S. dollar which could be bullish for UUP.

Bearish: Traders who believe that the bull-run in precious metals will continue may consider taking positions in the following:

  • Market Vectors Junior Gold Miners (NYSE: GDXJ). GDXJ is a play on junior gold miners, and may have more upside potential than just playing the metal.
  • Global X Silver Miners (NYSE: SIL) is a play on silver mining companies. SIL may rally if silver rallies.

Neither Benzinga nor its staff recommend that you buy, sell, or hold any security. We do not offer investment advice, personalized or otherwise. Benzinga recommends that you conduct your own due diligence and consult a certified financial professional for personalized advice about your financial situation.

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