Gold ETF Reaches New Inventory High

Inventory at the SPDR Gold Shares ETF (NYSEArca:GLD) made a new high on Tuesday at a whopping 787.88 tonnes after two small additions over the last week or so. This amount of bullion is greater than all but five of the world's central banks and the IMF.
Traders and investors of all types continue to like the yellow metal as the financial crisis goes on and on, now in its 18th month.

It seems clear that the longer these "paper money" troubles persist, the more popular nature's money will become. A falling gold price (per the futures market) since the high of last spring fails to deter buyers.

The two most recent additions are shown in the far right of the chart below. It's been slow and steady since the fall when inventory rose and the price fell. The Gold ETF has been a pretty good proxy for physical demand as the inventory/price relationship seems to track demand in the coin dealer market.
Since late-October, there have been ten additions, averaging about four tonnes each, and only two reductions of 0.2 and 0.3 tonnes. (Why did they even bother?)

This pales in comparison to the September-October period when there were 13 additions, averaging 13 tonnes each, along with 11 reductions averaging 7 tonnes.

A few months ago, the inventory-to-price ratio exceeded the one-to-one mark (i.e., tonnes in the trust per dollar of the gold price) as shown below. This ratio has recently dipped back below that mark but is headed higher again.
A report in Bloomberg the other day cited estimates of an average gold price of $910 an ounce in 2009 with four of the twenty analysts predicting an average price of over $1,000.

There were quite a few bearish forecasts. Bullion dealer Kitco was included in this group (surprise!) along with JP Morgan (surprise again!) with estimated declines of between 6.3 percent and 11.8 percent from the 2008 average price of $873 an ounce.

It should be another interesting year - gold has posted gains for either the last seven years or the last eight years, depending upon which price you look at (there was a gain of 0.7 percent based on the London Fix in 2001, but the spot price fell by a similar amount).

Full Disclosure: Long GLD at time of writing.

Comments

[Gold Barron:]

Filling upi the reserves before the buying onslaught of GLD. I believe gold is set to go much much much higher.

Jan 08 04:23 PM

[Zro:]

Buy GLD. Everyone's doing it!

Jan 08 05:03 PM

[MellowGuy:]

GLD is my favorite way to own gold because I can sell options against it.

Jan 08 05:45 PM

[Roger Knights:]

I notice that the declines from the March peak and the July/August peak were followed by declines in GLD's holdings, but the decline from the October peak was not. This seems to me to indicate that current buyers are "strong hands" who will be hard to "shake out."

Jan 08 06:35 PM

[T.Stamps:]

Obamas printing up 1 trillion more dollars. Is that all these dems
can think of.

Jan 08 09:59 PM

[Alan von Al...:]

A couple of items to consider. Bron Suchecki wrote 10/7/08 "While not having anything more to rely on but GLD's assurances that it has the gold, personally, I consider that since it was created and sponsored by the World Gold Council, which is owned by gold miners (who want the price to go up), that they would not be involved in an ETF that wasn't talking physical off the market (which is ultimately the best way to make the price go up)."

-- which is fine, except that all 787 tonnes are deposited at HSBC and it's not entirely certain what would happen if the bank failed: "The metal backing GLD should be in allocated form and thus off the balance sheet of HSBC, but who wants to be sitting around waiting for liquidators to work out what can and cannot be put in the creditors pool." [ibid]

Lastly, I wanted to mention the emerging redemption scandal at Comex. See, e.g., Jesse's recent heads-up re fractional reserve deliveries:
jessescrossroadscafe.b...

Whether I understand all of this correctly or not, I'm suspicious of paper assets, promises, and reports. I can count the coins in my hand. With counterparty risk the Deutsche Bank ETN seems scary. Is GLD safer?

What happens when jewelry demand falls?

Jan 08 11:15 PM

[Bernard Super:]

Tim: What is your take on the charge that GLD is unaudited and opaque, i.e. there is no way to know if they really have (all) the physical gold they say they have?

Thanks

Jan 08 11:15 PM

[Gold Barron:]

The price of gold is going higher

Jan 08 11:42 PM

[Conan the B...:]

The USD is rising, Faber has shifted gears as has Schiff.

The Aden Sisters have a caveat on gold, the dollar has to fall. They had a stop loss on their earlier predictions. Gold had to hold above $857.

If the Gold Newsletter writers, the Icons of the world of Gold, are changing their minds for now, why not follow their leads?

They were right for 8 years, are they wrong now? IMHO

Kitco.com-Gold Precious Metals

Jan 09 12:13 AM

[User 334034:]

Before the fund was launched in 2004, there were complaints that the prospectus was too loose on accounting for the trust's gold. This is just one more instance of never knowing for sure how much gold is really there, GLD's 800 tonnes paling in comparison to the amount of central bank gold that also might not be there.

On Jan 08 11:15 PM Bernard Super wrote:

> Tim: What is your take on the charge that GLD is unaudited and opaque,
> i.e. there is no way to know if they really have (all) the physical
> gold they say they have?
>
> Thanks

Jan 09 12:36 AM

[Tim Iacono:]

Before the fund was launched in 2004, there were compalints that the prospectus was too loose on accounting for the trust's gold. This is just one more instance of never knowing for sure how much gold is really there, GLD's 800 tonnes paling in comparison to the amount of central bank gold that also might not be there.

Jan 09 12:40 AM

[Anthony Alfidi:]

Investors who worry about the physical gold backing an instrument like GLD or IAU have another option: GDX, the gold mining ETF. Mining companies have gold in the ground rather than vaults or COMEX contracts. All you need is faith that their geologists can make competent estimates of recoverable ore.

Full disclosure: I'm long IAU and GDX, and I plan to stay that way for a few years.

Jan 09 12:41 AM

[Trace Mayer:]

Too bad there is no guarantee that the gold held by the ETFs is actual gold or that there is even any in inventory. Of course, it does not matter until it is the only thing that matters.



Seems a lot of Merrill Lynch's customers are getting skittish about the ETFs.

Jan 09 01:42 AM

[RISA:]

I don't understand "Inventory at the SPDR Gold Shares " ? What is the inventory for GLD ? Does anyone can explain it to me , thanks

Jan 09 04:05 AM

[know nothing:]

Most people act like the Obama plan is already final,(passed) it's hasn't! Then he makes the comment he believes that there is still time to fix this mess as long as we move fast. When has the Gov't ever moved fast?
I have not heard how much the interest payments are going to be on the trillions that are being spent and about to be spent? Has anyone ever considered what this administration is going to budget on unforeseen events that always affect the U.S. or the world for that matter? Earth quakes, floods,hurricanes, civil unrest. How many scams are going to be created to take advantage of the people that have lost almost everything and are desprate to invest in anything with the promise of recovering their losses,only to lose the rest of their savings,will that be another bailout? Then what about the number of baby boomers that are retiring,in large numbers,only inflicting more stress on a already stressed economic system,-Goverment! Will Obama have to spend more money,on the SSI ponzi scam? These are real issues that we don't heard much about because of all the press on the current failures. When is the general public going to wake up and realize that most of these public officials are criminals themselves,influenced by special interest money,not influenced by the will of the people.Only filling their own pockets. I believe somewhere in "revelations" (the last chapter in the bible for all you heathens) the outcome has already been predicted.
The whore in the west is selling her soul! Gold and silver will be tradeable for the basic staples to survive. Paper will still be in demand to start fires to stay warm and cook over! Good luck and God bless!

Jan 09 10:48 AM

[John R. Aff...:]

Please see bullionvault.com on your computer for answer to individual gold ownership. I wouldn't touch GLD with a ten foot pole.


On Jan 08 11:15 PM Alan von Altendorf wrote:

> A couple of items to consider. Bron Suchecki wrote 10/7/08 "While
> not having anything more to rely on but GLD's assurances that it
> has the gold, personally, I consider that since it was created and
> sponsored by the World Gold Council, which is owned by gold miners
> (who want the price to go up), that they would not be involved in
> an ETF that wasn't talking physical off the market (which is ultimately
> the best way to make the price go up)."
>
> -- which is fine, except that all 787 tonnes are deposited at HSBC
> and it's not entirely certain what would happen if the bank failed:
> "The metal backing GLD should be in allocated form and thus off the
> balance sheet of HSBC, but who wants to be sitting around waiting
> for liquidators to work out what can and cannot be put in the creditors
> pool." [ibid]
>
> Lastly, I wanted to mention the emerging redemption scandal at Comex.
> See, e.g., Jesse's recent heads-up re fractional reserve deliveries:

>
> jessescrossroadscafe.b...

>
>
> Whether I understand all of this correctly or not, I'm suspicious
> of paper assets, promises, and reports. I can count the coins in
> my hand. With counterparty risk the Deutsche Bank ETN seems scary.
> Is GLD safer?
>
> What happens when jewelry demand falls?

Jan 09 02:50 PM

[Conan the B...:]

Wait for the pre-ordered Jewelry, gold, silver: bracelets, pendants, chains, rings, earings to be returned to sender. They will not be held in Inventory forever.

Expected Holiday sales the world over were not exactly exhuberant. The mark downs in those items are still prevalent. Will retailers buy more, pay more?

Risk Aversion and cash preservation would indicate a resounding No!

Demand Destruction is alive and well in the Jewelry industry not just in the USA but the world over. IMO

Jan 09 03:52 PM

[Conan the B...:]

Zro has a comment worth looking at, "Buy GLD, everyone is doing it!"

If everyone is buying it, who is left to buy? The last one to buy Highest?

Jan 09 03:59 PM

[Kelly Liebe...:]

Zro, not everyone is buying it...yet. If they were you wouldn't be able to afford it. Not everyone has a supply of food and water for emergencies either. Most people prefer to live with their heads buried in the sand.
What are you going to do? A lot of people remained unconvinced that the economy was tanking..after all, the fundamentals of the economy were so strong.... When do people start thinking for themselves??

Jan 09 06:28 PM

[Aceofspades:]

The Democrats?! The Fed has more than doubled it's balance sheet in the last 6 months and the Fed and Treasury have combined to guarantee no less than $7 trillion dollars worth of loans, interests in companies (nationalizing), and bailouts. This has NOTHING to do with Democrats and Republicans. Don't be ridiculous. Besides, who was President while this was happening already?


On Jan 08 09:59 PM T.Stamps wrote:

> Obamas printing up 1 trillion more dollars. Is that all these dems
>
> can think of.

Jan 13 05:31 PM