Given the steady selling of gold by ETF investors in recent months, it seems inevitable that the holdings of the SPDR Gold Shares ETF (GLD) will soon sink below the 1,000 level, but that didn't happen on Wednesday.
Instead, the GLD trust added about a tonne of the yellow metal in what was only the second increase over the last 51 days of trading.
Does this signal a trend change? Probably not.
But with heightened volatility in stock and bond markets lately, a long overdue correction for the former could quickly send some institutional investors and hedge funds back into gold and a trend change could begin.
As shown below, it's been a one-way ticket down for the gold price beginning late last summer and then for GLD holdings starting in December. The failure of futures traders to bid the gold price higher after the Federal Reserve announced its latest money printing gambit late last year quickly turned ETF buyers into sellers, and then came April, when the gold market saw its steepest sell-off in decades.
Since last fall, the GLD ETF alone has shed nearly 350 tonnes of the metal, accounting for more than three-quarters of the worldwide decline in gold ETF holdings. During that time, the gold price has tumbled more than $400.
On Wednesday, the holdings for GLD rose from 1,012 tonnes to 1,013 tonnes, forestalling an announcement that will surely be widely publicized in the mainstream financial media when the tonnes in the trust fall below 1,000 for the first time since early 2009, as indicated in the chart.
It's worth remembering what conditions were like back in early 2009 before looking ahead. The worst financial crisis since the Great Depression had just struck and investors poured money into gold, much of this in ETF form.
From around 700 tonnes in late summer of 2008, the GLD ETF added more than 400 tonnes of gold over a period of about five months, crossing the 1,000 tonne mark for the first time on February 17, 2009.
So one way to look at the current situation is that about one-quarter of the late 2008/early 2009 "panic" GLD share purchases have already been reversed. But what of the other 300+ tonnes that were added just over four years ago? Were they permanent asset allocations changes? We'll find out soon enough.
To be sure, GLD holdings stabilizing at some point in the not-too-distant future will be seen as a bullish development for the gold price. As detailed here many times in recent months, there has been only a weak correlation between GLD holdings and the gold price in recent years, but inflows and outflows for the world's most popular gold ETF still matter.
For GLD holdings to stabilize above 1,000 tonnes would be wildly bullish, but it seems more likely that while Asia sets new records for gold demand in the second quarter of 2013, selling in the U.S. will continue. Much of the recent selling of gold in ETF form has been attributed to money managers freeing up funds in order to buy more stocks, and there's no doubt that asset allocation change has been successful.
But with leverage at or near record highs at the New York Stock Exchange and more optimism about the U.S. economy leading to more talk of the Federal Reserve reining in its quantitative easing largess, a long-overdue stock market correction would be supportive of higher gold prices, particularly if investors start worrying about inflation again.
Additional disclosure: I also own gold coins.