Gold ETF Adds 36.5 Tonnes to Inventory On Rise in Demand

The SPDR Gold Shares ETF (NYSE:GLD) inventory increased by 36.5 tonnes yesterday, an event that was probably related to the $85 increase in the price of the metal. This was the second biggest one-day addition, behind only the July 11th purchase of this year.
Prior to yesterday's addition, there had been a 92 tonne net decrease in inventory since that July 11th increase, with gold exiting the trust as recently as last Tuesday (11 tonnes) and Wednesday (16 tonnes).

As is the case for stock funds, when there is more demand for shares than currently exist, the fund must create new shares. As part of the process, instead of going out and buying stock to be placed in the fund, gold bullion is purchased and placed in the trust.

Sometimes it's funny to think that the gold and silver ETFs are being hailed as innovations here in the 2000s, just as stock mutual funds were lauded in the 1980s and 1990s .

That's real progress.

Comments

[CTMike:]

Watching the real time ticker for GLD yesterday was a sight to behold. This is war and the shorts took no prisoners on the way down and the favor was returned yesterday. You could smell the blood as attempt after attempt to keep the price of gold down failed. Who know what's in store for today but yesterday was more entertaining than any of the crappy Hollywood movies of late.

2008 Sep 18 08:11 AM

[aknahow:]

Demand for shares is not 100% correct, as an explanation for the addition of physical gold.

Only when shares sell at a sufficient premium to the value of physical gold behind each share, will new deposits of gold be made.

And the process involves not creating new shares but selling short the shares which are at a premium to gold, buying gold with the proceeds and depositing the gold in the ETF to obtain newly issued shares.

"As is the case for stock funds, when there is more demand for shares than currently exist, the fund must create new shares. As part of the process, instead of going out and buying stock to be placed in the fund, gold bullion is purchased and placed in the trust."

More demand for shares should or could cause the shares to sell at a premium. Thus in part what you wrote is true. The rest however is not really accurate or up to your usual standard.

2008 Sep 18 08:13 AM

[Tim Iacono:]

aknahow - Please provide a reference for your assertion

2008 Sep 18 09:02 AM

[lonie:]

If there is a shortage of gold in the retail market ,then where did the tons come from? I would like to know. Thirty six tons is a truck load.

2008 Sep 18 09:15 AM

[enviro111:]

retail investors mainly buy coins or small bars. The GLD ETF buys gold bricks. There is plently of gold bricks available from central banks, etc. Its the mintage of coins that takes extra time, money and effort. That is why they are in 'short' supply and warrant a premium.

Note this is only for gold. Silver does not have huge central bank supplies and despite the low prices is really in short supply.

2008 Sep 18 11:02 AM

[septic:]

How does and ETF transfer that much gold so quickly? What does the Central Bank do, run to Ft. Knox with a semi and deliver it to whatever fund wants it? Probably handled in futures on the COMEX, which leads it all back to paper and not physical bullion.

2008 Sep 18 11:31 AM

[GMiki1:]

I was standing in Fidelity's offices and watching the TV monitor when I saw gold was up $56. I actually gasped. Then I saw the story on the SEC banning naked short selling (already illegal). I cheered.

2008 Sep 18 12:23 PM

[Lionheart:]

I mentioned this several posts back when that $shark$ idiot was claiming to make so much money shorting. Of course he was....because the CFTC and the SEC were doing nothing about naked shorting (already illegal as mentioned).

They had no choice. Thousands of ounces of silver and gold are leaving the COMEX and NYMEX warehouses in Manhattan. They knew that the shorts had not "physical" to back up what was being physically delivered. This is one of the places GLD get their gold and silver. They take delivery from futures contracts.

So in a nutshell....the CFTC was having its head handed to them. I am glad we were all there to watch it.

2008 Sep 18 12:30 PM

[SW Richmond:]

Rob,

This isn't panic. If you think this is panic, you've not been around long enough to see real panic. This is nothing. This is a significant but still small number of people, late comers, starting to take positions by sticking their toes in the water. The gold market (real gold not paper gold) is so incredibly small that when real panic occurs, if you haven't already got a ticket, you won't be able to afford the ride.

Think "inflation-adjusted high", plus a premium for USD leverage, working in reverse, driving monetization.

I am at peace with all of this. Are you?

2008 Sep 18 03:10 PM

[aknahow:]

tim, you can contact State Street Investors and the managers of the fund or read the prospectus again with great care.

When you say, ". As part of the process, instead of going out and buying stock to be placed in the fund, gold bullion is purchased and placed in the trust.", logic would demonstrate that buying shares in the market would not add to the amount of shares outstanding. The ETF must issue new shares. It must have gold backing behind the shares issued. So a delivery of physical must take place first. The authorized participants don[t deliver physical and take shares because they ar good guys. They deliver to get new shares to cover the shares they sold short. They only sell short GLD shares when they are at a premium to their gold backing.

2008 Sep 19 03:48 PM