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Ignore The Noise: The Asians Are Picking Up The Gold Sold By ETF’s
As could be expected, the decreasing gold price has caused people to run away from gold investments and not only did the gold miners drop faster than expected, any decrease in the gold price usually also caused people to liquidate their holdings in the Exchange Traded Funds which are trying to provide an easy and liquid possibility for ‘the common man’ to invest in gold.
And indeed, the SPDR Gold Trust ETF (GLD) saw an outflow of almost 29 tonnes of gold (roughly 925,000 ounces) during the month of October. As of at the end of last month, the ETF only held 741 tonnes of gold (a little bit less than 24 million ounces) which is the lowest point in six years time. So even though the net long position in the gold futures is still positive, it looks like the smaller investors have spit out gold as an investment, and that’s exactly something we like to see when we are waiting for the ‘total capitulation’ phase.
Apart from the discussion whether or not the ETF effectively holds all of its gold in physical form, the outflow was real and it looks like the gold which was dumped by the ETF was immediately flown over to Hong Kong (after a short re-melting layover in Switzerland). According to more recent data, China has imported more than 68 tonnes of physical gold in earlier this month and India was also stepping up its gold buying efforts as it acquired 100 tonnes of the yellow metal.
Total ETF Outflows Source
So it’s almost guaranteed that these two Asian countries are extremely happy with the Gold ETF dumping its position as it allows them to get their hands on even more physical gold without upsetting the normal market circumstances (Asia is now practically just absorbing the selling pressure from the Western countries, which is the smartest thing to do, because if China and India would have been as aggressive when gold isn’t in a glut, it might have disrupted the normal market).
This could lead to a very interesting ‘problem’ when the retail investors are looking to get back in gold. Now the Asians are absorbing all the selling pressure, but the problem is that Asia obviously won’t stop buying gold when (yes, ‘when’, not ‘if’) the price goes up again. This means that instead of a net compensating move, there will be two larger buyers of the yellow metal as both Asian demand and ETF demand will dramatically increase the net demand for gold. Should the investment appetite for gold increase again to the levels of 2012, the Gold Trust would have to repurchase 612 tonnes of physical (!) gold, which is roughly 20 million ounces.
So we could be gearing up to see a perfect storm. At this point the Asian demand is high enough to compensate for all the ETF outflows, but the moment those Exchange Traded Funds will once again see a net inflow, they will have to compete with the Asian demand for physical gold as both will be scrambling to get their hands on those nice shiny gold bars.
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The people of India and China, it is said, have an almost spiritual affinity for gold, partly since it represents one's nest egg as well as personal embellishment. Whatever the reason they want gold, they must be alternately shaking their heads and laughing those heads off at the efforts make by the big banks to depress the price of gold, while physical gold flows into Chiina and India (not to mention Russia, which supposedly added 52 tons to their stockpile last month).
Everyone, please, put your hands in the air and move away from the keyboard. Now go check how much precious metal you have in your sock drawer, or lake bottom, as the case may be.
I see you're back already. That's an indication that you don't have enough. I mean if you could count it all that quickly and sit in front of the 'puter again...
Tomorrow, go buy some more. For Jamie and Lloyd and The Bernank and Mr. Yellin.
And no one is asking just why, because they don't have to are the ETF selling physical gold?
Actually, they DO have to. The amount of Gold held should, in theory, match the number of shares outstanding so as that each unit is equivalent to the Gold held and therefore the market price of Gold. Problem is, only AP's can withdraw physical in units of 100K shares. So if an AP takes out the physical equivalent from 100K shares, then the free float of shares declines by 100K to reflect the withdrawal of the physical equivalent. The problem here is that the BB's play all sorts of games with GLD shares, including hoarding, shorting, options etc. The fact is, the BB's run GLD for their own purposes and when supplies are tight they raid GLD as a source of physical.
All ETF structures are synthetic, and thanks you answered my question with they have to but they dont. That is what I was saying.
I hope you do get what I mean they dont have to transfer real gold anywhere so why do it?
If that movement is going to cause a bank crisis as some say here.
Oh and thanks for your reply
Why does anyone care what a gold salesman says? Gold is just another kind of insurance. Yes Insurance is a good thing, but that doesn't mean the people selling it are less slimy.
Paper Gold is the way to go, its so much lighter to carry around than all those heavy gold bars my brokers says.
I will happily have a gold ounce today and pay you two paper ounces tomorrow.
BTW, many Chinese already live in my area of Phoenix,
but I have yet to see one in my LCS.
When they change the name to Local Chinese Store, then I will know PMs have started to make an impact on the local Asians. Real estate is what they are here for. And an ASU education.
The Chinese are looking for an ASU education? LOL...
gold is cornered
the only remaining is rapidly being sucked up by the little people of the world
imagine if Bill Gates decided to make gold 10% of his savings....CRASH!!!! That would take another 200+++tons off the market...and there are not 200 tons of flow available.
Imagine if 10 billionaires decided to make gold 10% of their savings....they can't so they buy second best stuff like art and antiques and wine.
Gold needs a much higher price to function. If the price goes much higher it betrays to uselessness of the dollar..Stay tuned.
When the little people win....
My LCS has plenty of gold coins.
No 10 oz silver bars though and few generic AG rounds.
When the Chinese discover my LCS, Then I will worry.
It would have been interesting if this article covered just what percentage of total ETF purchases it has in actual gold. I think that they have the data since they have the real gold sold.
Most people are not getting the fact that they only have gold of a small % of the ETF they have sold.
Just becasue some Chinese want GLD does not mean that they get physical gold. From my understanding of GLD You must hold a large number of shares and then ask for delivery and it is not a foregone conclusion that you will actually get real gold. A good article would have been very clear about what is going on here.
"...And indeed, the SPDR Gold Trust ETF (GLD) saw an outflow of almost 29 tonnes of gold (roughly 925,000 ounces) during the month of October. As of at the end of last month, the ETF only held 741 tonnes of gold (a little bit less than 24 million ounces)
Apart from the discussion whether or not the ETF effectively holds all of its gold in physical form, the outflow was real and it looks like the gold which was dumped by the ETF was immediately flown over to Hong Kong (after a short re-melting layover in Switzerland). "
Perhaps, I missed interpreted but, I understood it to mean the ETF dumbed 29 tonnes of physical...
Yeah, and wiser hands are picking it up without risking exposing the true limited supply of physical. Interesting article. If correct, it suggests we are close to the end of manipulated gold, which means close to the end for the current economic paradigm. If the price of paper gold jumps, for ANY reason, and people start moving back into GLD, then the limited supply of physical shows up....and all bets are off.
And of course "the end of the current economic padadigm" is longhand for WTSHTF. Maybe TEOTWAWKI.
That is precisely why I think that all the Gold ETFs will close at the bottom and they will switch to physical based funds rather than paper based.
Maybe even use bankruptsy protection.
Free John Corzine!!!!
It's a big reason they are doing their best to keep the price suppressed. The game now is to try to keep the entire edifice from falling apart but it by bit the foundations are crumbling away.
Yes it is my impression that it is extremely difficult to take actual delivery from GLD.
So basically ETFs are designed to increase volatility in the base metal.
No. ETFs were invented as a way to manipulate the price of physical gold.
Agreed, base metal was my way of saying physical rather than paper.
Some how, some way, we need to get all the people of the world to trade in excess fiat for real gold and silver, then sit back and watch the show!
Patience, it's coming. It will happen in Shanghai which does not permit naked shorting and all trades must be backed up with metal. Delivery is in real physical. As the muppets finally realise that Comex is a totally rigged game, they will move to trade in Shanghai. This process would be accelerated by a "Cash settlement" (aka "Default") failure of delivery on LBMA or Comex. That is looking quite likely as Silver OI continues to rise and Gold is deep in backwardation. That tells us that there is no metal around...
And to siphon off the demand for the phyzz.
"It's so much safer and easier to let us buy/hold/sell it for you, Mr. Muppet."
if you can't throw it
at the old ladies cat
you don't own it ...
Paper is paper is paper... If you don't hold it in your possession, you don't own it.
For all who can read in Russian: New trick Putin – is the sale of oil and gas only for gold.
I think I need to translate this article into English and published on the ZH.
Trust me Putin isn't dumb he knows that the US and their allies are trying to take Russia down so he's keeping his cards close and fighting where it hurts us the most without a war, in the pocket.
This interpretation is not entirely accurate. Only Authorised Participants (AP's), basically th Bullion Banks, can withdraw physical metal from GLD, in units of 100K shares. They are using GLD as a last source of physical Gold because they can't find it elsewhere. When an AP withdraws physical, the free share float decreases by the same 100K shares but the unit share price still reflects the market price of Gold. The AP's play a lot of games with shres (Shorting, options etc.) A better measure of small investor sentiment is actually the size of GLD free share float