GLD Amassing Physical Gold

The inventory at the SPDR Gold Shares ETF (GLD) hit a new all-time high the other day at 755 tonnes and, in the process, came even closer to Japan, a country that currently holds the #7 spot in the World Gold Council's World Gold Holdings.
It's funny to see the gold price about 15 percent lower than the peak earlier this year while the inventory is about 15 percent higher.

It's even funnier to see that you can't buy the stuff in many coin shops - I see California Numismatic Investments has replaced all of the "N/A" entries with the much more meaningful "Out of Stock" in the "Sell" column on their bullion page.

Here's what the wold gold order now looks like.  Japan's days at number 7 are numbered.
Mark Haynes was heard to say on CNBC the other day something like, "I'd go out and buy some gold coins right now and bury them in my backyard, but the coin shops are all out". Then he went on to chuckle in a manner that, at first sounded condescending, but, as it continued, had a distinct sense of helplessness.

Comments

[PastTense:]

Exactly how much gold is there in back of each GLD share?

How exactly does GLD get its management fee?

2008 Oct 01 11:32 AM

[GMiki1:]

Mark Haynes isn't as dumb as he seems. He had a funny exchange with the uber-slow Larry Kudlow the other day...

2008 Oct 01 11:43 AM

[David Lentz:]

"It's funny to see the gold price about 15 percent lower than the peak earlier this year while the inventory is about 15 percent higher."

Yup. One should tread very carefully here, as it certainly looks like the price of gold is being manipulated -- probably by central bankers.

If you convert the total amount of gold available in the world today to dollars (or euros, or any other fiat currency), is it dwarfed by the global money supply of the fiat currencies. This means that gold is the central bankers' bitch -- it can be made to do ANYTHING THEY WANT IT TO.

People expecting gold to leap upward and displace all the fiat currencies are doomed to disappointment, and probably substantial losses. Gold is only a commodity, one whose value is based mostly on the fear that fiat currencies will fail. When they do not fail, but are only bruised, gold inevitably suffers a steep and precipitous fall. The history of gold is full of examples of this. When one fiat currency DOES fail, we do not see a gold-based economy springing up in its place, but instead we see another fiat currency replacing the old.

Watch what happens to the Zimbabwe dollar, whether it is replaced by gold when the reins of power change hands there, or whether either another fiat currency springs up, or the Zimbabwe dollar is simply devalued and the game starts anew.

2008 Oct 01 11:45 AM

[ozzy43:]

It would be interesting and quite informative if, in the table above, there were another column indicating how much of those gold "reserves" assigned to each entity were in fact leased out. I've heard some apparently strong arguments made that most if not all of the reserves supposedly assigned to the US are in fact non-existent due to gold leasing. Seems to potentially be the dirty secret here.

2008 Oct 01 11:47 AM

[ozzy43:]

David - the implicit assumption you make here is that fiat currencies will not fail, only fall then spring back from time to time. I think this is an historically uninformed opinion. For thousands of years, fiat currencies have prospered then, ineluctably, failed, starting in the Szechuan province in the 11th century when such a currency was first documented. The record is abundant and clear on this score.

Your statement that "When one fiat currency DOES fail, we do not see a gold-based economy springing up in its place, but instead we see another fiat currency replacing the old." demonstrates that you have a nearly non-existent grasp of history, or are just making it up as you go along, because that is NOT the pattern that even a cursory analysis of history yields. Do you know what a 'Continental' was? How about a 'greenback'? These are only 2 relatively recent examples of fiat currencies which failed and were followed by gold or silver back currencies and they occurred in our own country within the last couple of centuries - the fact that you seem blissfully unaware of even these obvious counter-examples which give the lie to your assertion tells us your postulations about history are uninformed and not credible.

After re-learning history, your next task would be to explain how the last 37 years (since Nixon closed the international convertibility window and ended once and for all the prevailing gold exhange regime) are somehow completely different than all of the other experiences of fiat currencies for the last 1000 years. Once you've done that, I'll be willing to listen to your arguments.

Suggest you spend a couple hours reviewing the material here:

www.chrismartenson.com...

2008 Oct 01 11:59 AM

[JBP:]

If the bailout package goes through what do you all predict for silver and gold in the short term?

2008 Oct 01 12:28 PM

[SW Richmond:]

David,

Except that most of us here are holding dollars, and if the dollar dies and is replaced by some new even stupider fiat currency, how will we move wealth from one fiat regime to the next?

Do you think gold is valuable in Zimbabwe right now?

2008 Oct 01 12:43 PM

[phdinsuntan...:]

taxes down
+ expenditures up
=
+ fiscal deficit
=
+bond emission
=
Japan, China, Gulf, Europe is the boss,
if they dont buy the bonds US5/ Euro?

2008 Oct 01 12:46 PM

[Cesato:]

JBP, selling is the name of the game short term, buy back on December, strangthening USD, lower Oil (and in general the commodities complex) increasingly need for cash and expected lower physical demand will bring Gold price down, Hedge Funds are also in a widespread liquidation of assest to raise cash and stand aside or even looking for bargains in the stock market after approval of the bailout package, remember that Hedge Fund have been key players in the Gold uptrend, I see a techical double top at 986 (disregard the spike to 1033) as I mentioned in a previous comment the USD/Gold ratio stands where it was in March 2008 prior to a USD 250 decline in the price of Gold. Silver is a different bet but probably at USD 10 or so then it worth to buy it but again not anytime soon.

2008 Oct 02 06:08 AM

[andyn:]

I know everyone is rushing in to buy gold now due to the increase in money supply.
BUT, the Indians (who have been smart enough to hoard gold all these decades) start selling at these high levels, watch out below.
Though they are not in the list above (and it may well be that the govt of India doesnt have official reserves), rest assured that Indians have tonnes buried in their backyards as it were.
Anecdotally, I can tell you when gold ran up the last time to $1000, there were lots of Indians selling it.
So the point I am making is that the official reserves dont tell the whole story. Be careful with GLD and have tight stops.

2008 Oct 02 08:43 AM

[User 30121:]

You go ozzy43! Well said!

2008 Oct 02 11:52 AM