Hedging Funds And Physical Vs Paper Gold

Tyler Durden's picture

Its been three long years for the 'net' speculative futures, options, and ETF holders of gold who have been reducing their exposure to the precious metal. Three long years of hearing day after day that "gold's day is done" or some other perspective that stands in the face of reckless government deficit expansion and morose monetization by all the world's central banks. Three long years and hedgies are the least exposed in years to GLD. Three long years because, as the chart below shows extremely clearly, they simply don't appear to count at the margin. The total disconnect as paper gold positioning - ETF holdings and net futures/options speculative positioning -  has had no correlation with the price of Gold since August 2010 when the world started anticipating QE2 (and beyond).

Is this the indication of counterparty fears we have discussed? Or Santelli's correct comprehension of what you end up with in a crisis if you hold paper gold?


With global central banks expanding their balance sheets and many governments still increasing their gold holdings, perhaps this is the clearest indication of a rotation from paper gold to physical we can see - even as prices fall in the short-term 'strange divergence' from demand.

Furthermore, it appears the current slowdown is similar to each of the past surges post major Fed action... (S&P[green] versus Gold[orange] since QE2)

...and arguably, as central bank balance sheets remain bloated (though in the short-term thanks to LTRO repayment the gross USD-based balance is fading marginally) - the fact that the Fed has promised QE4EVA implies the ever-expanding growth of fiat will support gold prices implicitly.



It appears gold has front-run Central Bank exuberance a few times since QE2 - and each time pulled back before embarking on its inexorable rise higher. With the Fed alone adding $1tn this year and China yet to report up-to-date data for January and February, we suspect the 'green' line will start dragging the 'black' line higher once again - especially with European risks flaring once again and the desire to repay LTRO funds wearing off.


Charts: Bloomberg

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francis_sawyer's picture

Fuck ~ at some point they'll just do a campaign to MARKET the idea of 'paper shorting' gold & silver ETF's [to J6P] simply to hustle in all the 'Scottrade' & 'TD Ameritade' derelicts who actually think they're Michael Phelps swimming in a DARK POOL of whales because they saw a commercial of a guy on TV with a 10,000 sq. foot Malibu house trading from his iPAD while hitting balls on the driving range...


That'll be about 5...4...3...2... before joobux get devalued, or your 401k's get locked up to buy 30 year Treasuries [as your 'Patriotic Duty' ~ FOR THE KIDZ]...

Careless Whisper's picture

The Careless Whisper Saturday News Update & Threadjacking AHEAD Of DRUDGE


Mayor Of Oakland CA Offers Workshop On Lock-Picking


Shoppers At "The Westchester" Mall Offered A Wash & Wax For $1,000


Artist Captures Essence Of Mayor Bloomberg In Portrait




francis_sawyer's picture

Your CARELESS WHISPER thread jack interrupted my EDIT of 'dark pool whales' to 'Megalodon' era type shark whales...


But it's cool... 

cynicalskeptic's picture

A good number of the potential customers for that $1000 wash and wax leased their big buck cars and are living in houses without any furniture - they're living way beyond their means. Too common in places like Westchester.  The ones that have serious money aren't stupid enough to waste $1000 on a job they can get done for a tenth of that (you've got plenty of guys with vans who come to your house or office to do the same job).

You're left with the 'keeping-up-with' crowd looking to impress someone and those who can put it on a corporate expense account.  

He'd be better off in Greenwich with the hedge fund guys.  They love showing off and write their whole lives off as a business expense.

thisandthat's picture

Mayor Kevin (Costner) Bloomberg? lol

augustusgloop's picture

you lost me at joobux. as i recall it was charlie munger who correctly pointed that gold is money at the liminal moment of sewing into your clothes while fleeing Germany. But I guess those were called JudenMarks. 

jeebus's picture

I heard there was some sort of death cross and now the budget deficit is going to be solved. Did Jim Cramer just put a Strong Buy rating on Apple?

Kirk2NCC1701's picture

Too late, my 401k is now an IRA. Where I have far more options.

Dr.'s picture

Bring it.


JustObserving's picture

Don't worry, US has infinte supply of cheap money as mayor Bloomberg explained yesterday:

"We are spending money we don’t have.  When it comes to the United States federal government, people do seem willing to lend us an infinite amount of money.  Our debt is so big and so many people own it that it’s preposterous to think that they would stop selling us more.  It’s the old story: If you owe the bank $50,000, you got a problem.  If you owe the bank $50 million, they got a problem.  And that’s a problem for the lenders.  They can’t stop lending us more money."

So why buy gold when you can lend money to the US government at negative real rates?

AnAnonymous's picture

Matter of trillions today. So they have an infinite problem.

That is what one must look for, when 'americans' admit it as it is.

That 'american' admits 'americans' run a business of extorting the weak, farming the poor.

So be it .

akak's picture

Matter of billions of chinese citizenism citizens today. So they have an infinite problem with blobbing-up resources.

That is what one must look for, when chinese hypocritizens refuse to self-indict and admit reality is as it is.

That Chinese hypcritizens admits chinese citizenism citizens run a business of exporting the weakly-made crap, farming the poor FoxConn sweatshop laborer.

So be it .

TheFourthStooge-ing's picture


That Chinese hypcritizens admits chinese citizenism citizens run a business of exporting the weakly-made crap, farming the poor FoxConn sweatshop laborer.

Chinese Communautist Party Citizenists are well known in their view of other peoples as sub-humans or non-humans, even other Chineses. Makes it easier to justify the harvests on the poor farm.

This is this that caused the other players to play the cards they played.

lasvegaspersona's picture

A Chinese girl friend once called me a 'bi gway'. She said it meant white devil...I said what do you call black people? ...'hey gway' she said.

So what do Chinese call themselves?....'human beings'.....

My experience is that the Chinese have no difficulty in recognizing prejudices...giving or getting...they just recognize it as a fact of life...

Karlus's picture

While they are buying cans of fresh air.


When the US repudiates the debt and revolution hits China, the "glitterati's" goose (and they themselves) will literally be cooked. This will make the French revolution and the guillotine look tame by comparison.


They should enjoy it while they can



Midas's picture

The Chinaman is not the issue here, dude.

Walter, this isn't a guy who built the railroad here!

TheFourthStooge-ing's picture

The Dude abides.

The Chinese Citizenism Dude abrades.

akak's picture

The Chinese citizenism doody degrades .... on the roadside.

TheFourthStooge-ing's picture

AnAnonymous stated:

That 'american' admits 'americans' run a business of extorting the weak, farming the poor.

That AnAnonymous only sees 'americans' running a business of extorting the weak, farming the poor is comical at best. Funny how some people can not free themselves from their prejudices.

Beliefs, beliefs, some people can't live on facts and always prefer their beliefs.

Pseudo Anonym's picture

dump paper and get the metal at paper price; contrary to what the banksters expect you to do: sell your bullion to them into  declining paper prices because you're the weak hands.

new game's picture

last chart says it all

gold vs CB money creation

nothing more today...

VonManstein's picture

Liking the Gold SPX chart the best.

USD and ES have both strengthened since 2010 and they ar eboth getting dumped this year

Herkimer Jerkimer's picture




How can we be sure that the ol' printing press down at GLD just isn't smokin' with its output?


Does anybody really believe they haven't just upped the paper output to keep the gold price down?


Who tracks this?


It God I Trust. All Others Pay Cash!


Trust. But Verify!



lasvegaspersona's picture

GLD seems to operate as a storage vault for the wealthy. Every so often the inventory drops. this is interpreted as decreased interest by the media but actually seems to be some large entity demanding real gold for their shares of GLD. They go from unallocated to allocated. Check recent activity...several large 'withdrawls.'

DowTheorist's picture

Amen Lasvegaspersona.


fofoa and victor the cleaner have written conclusively about the subject:






Any serious investor should heed the wisdom of fofoa and victor the cleaner.

Pseudo Anonym's picture

good links.. never heard of this guy fofofa. 4 middle names???  4get i asked.

Xue's picture

GLD is not like COMEX, you cannot take delivery of physical gold.

therover's picture

Got that right brother. More people need to understand this, and do the Olivia Newton John  (ie, GET PHYSICAL. Sorry for the poor analogy but she was kinda hot back then).

1eyedman's picture

i find this article a bit alarmist.  it seems to want to say that if you dont own physical gold, a person is getting cheated out of gold's returns.  the chart compares the performance of the price of gold, the price of spx and the number of GLD shares--as a representation of gld's relative performance.     a chart of the gld's price is exactly the same as the price of gold on this chart.  


perhaps GLD is losing out to other gold etf's adn doesnt need to create more shares to go around?  the sheer number of gold futures contracts outstanding has increased lately, but they are of the short nature...selling naked contracts.   of course they wont be able to deliver.  i think it  could set up a short squeeze of sorts as those contracts mature.  whoever is short, will have to buy...unless gold is trading even lower, which could be accomplished by selling even more naked contracts further out.    the relation to price of gold and spx, very recently, is almost perfectly negatively correlated.   selling future gold and buy spx futes perhaps?    if this is the case the likely decline in spx over the next couple of weeks might cause a massive short cover of gold futes and massive sale of spx.   a little puishment for the muppets who want the govt to spend less?      if the selloff doesnt occur right away, post triple witching should set up massive volatlity.

Karlus's picture

I think the bottom line is regardless of GLD returns, when the instrument itself fails you will not have a claim to anything. Phyzz is secured, investment in GLD is unsecured.

Kirk2NCC1701's picture

I really don't give a crap about the MSM hullabaloo on GLD. I stack PM on dips, and save up in between. I take the Buffet approach: buy & hold.
Plus it takes fiat out of FRB circulation, thus doing my part to starve the Beast. I only hope that I don't lose my treasure map.

new game's picture

I only hope that I don't lose my treasure map.

ashes to earth, earth to ashes.

someone will find it eventually...

Lost Wages's picture

Has anyone seen a web site with the real current physical price as opposed to a futures price? Like the bullion bank ask/bid or last sale price? Or would such a site get cyberdroned by The Man?

CitizenPete's picture

I'm interested in what your asking for.  Please explain.  My understanding: Spot price is (of course) published in near real-time and premium is applied by physical sales outlets and mints -- and different forms have different premiums.  

Kitco is prob most popular for a general spot.  They also report the daily London FIX prices for PMs. 

Bullion Vault application has near realtime trading prices for physical in several different currencies. 

For benchmark prices without commissions, for a gold eagle for example, I look at  Tulving compared to one of the handful authorized distributors of the US mint eagles (gold and Silver)  (APMEX being one of the most well know).   If your talking real quantities, I beleive the IMF posts something in regards to SDRs and gold price  if I remember correctly.  


So what exactly are you looking for?

Victor The Cleaner's picture

Has anyone seen a web site with the real current physical price as opposed to a futures price?

It's called the spot price. Gold as a currency is called XAU, and so you are looking for XAUUSD. You can get it for the various banks on Bloomberg, Reuters or even some average figures on Yahoo! (type in "XAUUSD=X") or at Kitco. Once you have bought XAU, you need to have it allocated in order to get actual physical gold.