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On Wednesday, the inventory of gold bullion held by the streetTRACKS Gold Shares ETF (AMEX: GLD) reached a new all-time high at 507 tonnes. Plotted against the gold price since the fund's inception in the chart below, the rise in inventory tells a compelling story about how popular this fund has become in less than three years.

[click to enlarge]


According to the most recent update from the World Gold Council, this puts this gold ETF at number 11 in the official ranking of world gold holdings, having climbed from about 32nd place since the fund was established with about 100 tonnes in late 2004.

Since that time, the fund has passed South Africa, Singapore, Saudi Arabia, the BIS, Sweden, the U.K., Spain, Russia, and Taiwan, settling in behind number 10 China and their 600 tonnes.

Aside from setting a new record, the most significant development in the recent inventory data was that 10 tonne spike that occurred on Wednesday, circled in red below.

It appears to be quite unusual for inventory to rise so sharply after the gold price had fallen so abruptly just a few weeks ago. Based on the previous data, inventory doesn't necessarily decline after the gold price falls, but it's never risen like this.

Zooming in a little bit further in the chart below, it becomes clear that, at least in the very short term, the historical pattern of the GLD inventory following the gold price no longer seems to be holding.

What does this mean?

Aside from the obvious fact that physical demand from the ETF is now supporting the price of gold as never before and, due to the tumult in credit markets, is likely to do so for some time to come ... it also means that China should consider buying some more gold if it wants to hang on to 10th place in the world gold rankings.

Full Disclosure: No position in GLD at time of writing, however, the author owns a hefty supply of shiny, one-ounce gold coins.

Source: Gold Bullion Inventory Reaches New All-Time High