SPDR GLD ETF Unloads 79 Tons of Gold - Should Investors Follow Suit? 50 comments
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And so it begins. The SPDR Gold Trust (GLD), the world's largest gold-backed exchange traded fund, reported that it sold more than 10 tons of bullion this past Tuesday. That corresponds to 1.7 percent of its total holdings.
SPDR now holds "only" 631.2 tons of gold, down from 641.93 tons on Sept. 8. The trust has sold 68.7 tons of gold since its holdings hit a record 705.9 tons two months ago. The current level is still up from the 627 tons reported for December 2007 -- when gold was trading in the $860 range... a solid $100 above today's median price.
The sale of gold through the SPDR Gold Trust should not be underestimated. Even at its lower Dec. 2007 levels, the fund held more physical gold than China, the Netherlands, and the European Central Bank. It has more gold than Russia, the Bank of England, and Saudi Arabia. In fact, the difference between the gold reserves of the Bank of Japan and GLD in December was a measly 130 tons.
Let's do the math: GLD purchased 79 tons of gold between Dec. 2007 and July 2008. That corresponds to the total gold reserves of Australia or Kuwait. That demand is now gone from the market.
In the last two months, the fund has liquidated 74.7 tons of gold... the equivalent of Egypt's total reserves.
And just Tuesday, it pumped 10 tons into the market. According to the Reserve Asset Statistics of the World Gold Council, that corresponds to the combined reserves of Canada, Mexico and Bahrain.
And GLD is just one gold-backed ETF.
In the past, I have liked to point to the introduction of exchange-traded funds linked to gold as a major new catalyst for new gold demand. In fact, it was mainly demand from fund investors -- not even coin-hoarding gold bugs or jewelry buyers -- that was driving the gold price up. The fund first listed on the NYSE in 2004... are you seeing a pattern emerge?
Its original price was based on the price of 1/10th of an ounce of gold. The current spot price of $756.10 would thus correspond to a share price of $75.61.The fund closed at $74.22 on Wednesday, and after-hour trading indicates further downward pressure at a share price of $73.84.
What is the downside? Let's look at the inventory: GLD only has 4 more tons of gold than it had at the beginning of the year. Gold is now trading $50 below its early January price level of between $850-930 per ounce. Which means the YTD excess inventory is held at a loss...
With a major gold purchaser having turned into a major seller of physical gold, there is now a severe disturbance in the supply-demand ratio that supported the bull run of the past four years. On Aug. 5, when I posted my article "Gold Price Plunges: Might as Well Hold Stocks" on SeekingAlpha.com, I wrote:
"Oil's downside by now has been pegged at $110 and even $70 per barrel, that's 26% or even 50% below its record high. For gold, a synchronous decline would result in prices around $750 or even $500 per ounce. It seems unlikely. But, since my gold bug friends brought up the Carter Administration... history not only documents straight increases -- but horrendous drops far larger than that, all within the last three decades."
A Commenter responded:
"As for gold at $750 and $500, those aren't support points on any chart I've seen. The Gold support points I have are $850 (very strong), $800 (weak) and $650 (Herculean strong)."
As we're closing in on $100 oil and $750 oil, those Herculean strong points are not quite looking quite as untouchable any more. After all, Hercules, too, fell prey to the painful revenge of the centaur Nessus.
And GLD still has all the gold in China to liquidate...
Disclosure: None
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This article has 50 comments:
so who owns all GLD gold now?
this trick of destroying hedge funds
long/short positions in commodities/financials
is working for commodities at least.
Enough to jump out of the greenback soon
smart gentlemen, you dont want to be on
board when the next captain jump on the ship...
You need to flee to the safety and security of paper money backed by the full faith and credit of Joseph L. Sixpack and the $550,000 option ARM he took out on his charming 3-bedroom house on 1/16 acre. That kind of strength and security, coupled with a dynamite 1.7% yield, will get you through these troubled times with a tidy profit. When all's said and done, gold will be only a memory, a worthless coin framed and mounted on the wall next to Enron and Petsmart certificates in the "gone to zero, ain't coming back" hall of shame.
Get out now while you still can!
I agree with the author's implication that the easy tradability of GLD, SLV, and other commodity ETF's has been the greatest contributor to the commodities bubble - even more so than dollar devaluation. Several authors have pointed out that dollar devaluation only accounts for a portion of the price spike.
Long term precious metal investors are perhaps unused to having momentum traders piling into their markets with stunning amounts of capital as prices rise and then piling out as prices fall. Thanks to ETF's, commodities are now just another asset class for the day trader.
So spare me the claims of manipulation.
Also, if so much is changing hands, wouldn't it make sense that it would blip on a buyer's radar somewhere?
I smell a rat.
The U.S. Treasury statement for gold has not changed by one ounce since March 2006. You can find that statement here:
fms.treas.gov/gold/ind...
Have you ever seen any going enterprise have the exact same working inventory for 28 months?
What goes on here? This comes from the U.S. Treasury and U.S. Mint, not some conspiracy web site. Can someone explain this?
I wonder if the recent dollar rally and gold decline was engineered in preparation for the recent Fannie and Freddie action.
My point to those who argue that gold is a 'Hard Asset' and therefore should be held in preference to paper assets , is that hard assets that have risen in a few years from 400 $ to 1000$ are just if not more risky as paper assets that are being slowly undermined by inflation / credit crunch etc.. the on;y answer is earn more and spend less .
In recent weeks, a local shortage at some jewelers created a small discrepancy between the price of gold on the commodities exchanges and the price at physical gold distributors, e.g. coin dealers. James Conrad, here on Seeking Alpha, quickly came up with a major conspiracy theory claiming all non-physical gold is fake, and precious metal exchanges are one big scam.
Arbitrageurs, however, knew better and jumped in to cash on this discrepancy. They bought shares of GLD, then redeemed 22 million of them for 2.2 million ounces, or 68.7 tons of physical gold, which they have already sold to jewelers, mints, and panicking people convinced of the impending demise of all financial systems. The profit, after redemption fees, was not big in money-manager terms, but it was risk free, which is what arbitrage trading is all about.
Whenever mass hysteria hits the market, it is those with a rational head on their shoulders who make the most money.
I say, "In the last two months, the fund has liquidated 74.7 tons of gold... the equivalent of LESS THAN half of the SAME two month demand FOR gold from Indian consumers.
Here is what Hindu Business Line says,
"Mumbai, Sept. 9 The sharp fall in gold prices has led to a steep rise in imports which had been recording a drastic decline from April onwards.
Gold imports in August rose 47 per cent to 100 tonnes against 68 tonnes logged in July."
www.thehindubusinessli...
This sounds like the critical reasoning section of a computer based test:
I happen to know that Joe bought a bunch of commodity x last month. Therefore I expect him to buy the same amount each month from now on.
Another variant is...
There is a rig in the Gulf of Mexico that has struck oil and is now producing 10k barrels a day. Therefore worldwide prices will fall.
Find the fallacies...
Anyone who plans on not losing money needs to be able to tune out anecdotal stories and context-free details and look at the macro picture with deep skepticism.
Indian consumers have an average annual demand of about 800 tonnes.
If it is rising or falling by ten percent it is relevant to the price of gold.
China: Dumping the dollar
The increasing wealth in China and India, as well as in the Middle East, is supporting the gold price.
The biggest single buyer of gold right now is likely China's central bank. China had amassed $1.8 trillion in official currency reserves by the end of June, much of it in U.S. Treasurys. Though the U.S. dollar has regained some strength lately, the International Monetary Fund, Warren Buffett and others still see the long-term trend as down. That's a big reason China watchers think the country is converting some of its cash into gold.
Map: World's largest gold buyers and sellers
China reported 600 metric tons of gold reserves at the end of June, or 1% of its total cash reserves. At today's prices, that's about $16 billion worth, or about 20 million ounces, less than half a percent of the estimated total gold in existence. Though Beijing is not reporting any addition of gold to its official reserves, some analysts at top trading and investment management firms believe China is quietly buying gold to diversify out of the dollar.
What we do know for sure is that Chinese citizens are increasing their purchases of gold. In 2007, Chinese retail investment in gold rose 63% to 32 metric tons, according to the Shanghai Gold Exchange, as China supplanted the U.S. as the second-largest consumer of gold. Also in 2007, China ended South Africa's 102-year reign as the largest gold producer in the world, taking the top spot as its production rose 8%, according to GFMS, a metals consulting company in the United Kingdom.
I'm putting in a stinker bid at two bucks, GTC. Please don't bid above me.
The result - the US Dollar is soaring and gold is collapsing.
Yep, that makes sense alright.
If you thought your losses stop when you to big to fail stock crashes down to 0 guess again with the bail-out inflation will drag you to hell.
People thought Ben would be dropping 100’s instead he’s dropping Banks…..LOL
jimrogers-investments....
That is not a bearish trend.... that is a bull trend!
My post earlier noted that MSN reported that China is buying Gold...does anybody think that it might have anything to do with the fact that the US economy is tanking and we owe them a huge mountain of money and they are holding a worthless amount of our paper that we keep printing to keep bailing out our failing institutions???
If I was China, I would take those greenbacks and buy every ton of bullion I could get my hands on. Because remember folks, the dollar is backed by the full faith and credit of the US Government! There is no more faith in it, and the only credit we have left is the stuff we keep printing....
deuxsous, Just a concerned investor. I also invest in domains, and blog a lot about that industry. Right now, I am very relieved that I am involved in an industry that is appreciating faster than any commodity or stock on the planet.
If anyone is interested in learning more about the domain market you can take a look at dnjournal dot com. Within any market cycle there are still ways of making money....
Less GLD shareholders = sell some more gold.
Gold rallies, ETF buys more to accomodate new long positions.
He needs to look at GLD as less of a cause and more of an effect.
Dave
This is what I would do if I had limited funds:
Stock up on food, medicine, water, batteries, toiletries etc... Things that I know I will use anyway... but I will be buying at todays prices.
If I had kids I would make sure that I had basic clothes and shoes and outerwear (used is fine) that would get them through the next year.
I would buy at least 2 decent bikes with small trailers that attach.
I would buy seeds, soil and grow lights so I could start a garden in the winter if necessary. Buy a book for directions.
Buy a book on basic survival skills and read it.
Buy some good camping equipment, sleeping bags etc.. in case you need to relocate.
Think about the preparations people made for Ike. Make sure you have easy access to all important records for all family members.
No big deal if nothing goes down. You are prepared for any emergency. Recycle your food and water every 4-6 months and use that camping equipment for fun. Get on the bikes and get healthy... No big deal. If things get rough for awhile, you are a bit ahead of most..
Keep buying a little gold here and there. You don't have to go nuts.
I am not what anyone would call a "survivalist".. but I definately am a survivor.
Maybe that's who they're selling to.
Investors have been dumping everything since last monday.
Sounds like GLD went out with the bathwater. Or maybe they'd rather have physical gold (if they can find it) since there was talk of closing all markets while the govts rewrite rules. If there demand isn't there, why can't we get our hands on any?
Why not invest in platina for the long term? Sooner or later the crisis is melted and as soon as the economic is at his high terms again, platina will raise in much bigger way gold has done the last 5 years. If you look at historical rates some year ago, you can see platina was at appr. 30K euro a
kilogram to gold which was at only 20K euro a kilogram. The price of Platina was fallen almost to the same rate as gold has.
Reason where the economics where good, the transport world was lifting, a higher production of cars, and a increasingly world of platina as jewelry in asian.
Two important facts which I think will make the platinacourse rapidly skyrise when the economic will restore to his old level.
Is it worth the shot you think?????