Gold hasn’t been the flavor of the month for a while now, and the asset ‘managers’ at the SPDR Gold Shares ETF, trading with GLD as ticker symbol are definitely feeling the pain. From being the world’s largest ETF available [6] just a few years ago (with a value that was even higher than the S&P ETF), GLD has seen 2/3rds of its assets under management been withdrawn.
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Indeed, the current total amount of gold held by the ETF is just over 700 tonnes [8] with a total value of approximately of just $26.7B, compared to almost $80B in 2011. This means that if GLD indeed holds all the gold in physical form in its bank vaults, it sold approximately $50B worth of physical gold in the past few years. Not only does this raise the question if the most recent drop in the gold price was some sort of self-fulfilling prophecy, but it also raises the question who ended up with the gold, because, as you know ‘for every seller, there is a buyer’.
The sentiment remained negative in the past few weeks and months as in May alone, the ETF saw an additional outflow of almost $1B. And nobody will argue with the fact the more the Gold ETF gets out of favor, the closer to the bottom we are. Remember GLD’s value peaked at almost $80B in 2011? Well, just two weeks after reaching the record high, the gold price topped and only went downhill from there on.
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All weak hands have now reduced their exposure to gold through the Gold Shares ETF, only the real believers are still holding the ETF, so the selling pressure should per definition decrease as there are less weak and nervous hands. On top of that, we see some positive chart-technical signs with the money flow index once again flirting with the lows we only saw before two nice break-outs in the past 12 months (see previous chart).
The next few weeks and months will be very important for gold, as some market analysts are expecting one final dip to $1080/oz before starting to move up again. There’s only one thing you can be sure of, a lot more shit will hit the fan shortly as Greece is in a technical default, the USA still plans to increase its interest rates despite the fact the underlying economy isn’t strong at all. Throw in Russia’s and China’s continues hunger for gold in the mix and you’ll understand why we think it’s more likely gold will move up instead of down in the medium-term.
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