Mineweb, Feb 28, 2014
The world’s largest gold ETF has seen 10 tonnes of inflows in February as compared with last year’s huge outflows and the market impact, should the trend continue, could be strong indeed.
Jan 31st 2014 – 793.16 tonnes. Feb 27th 2014 – 803.7 tonnes. What’s the significance of these dates and figures? They show the tonnages of gold held in the SPDR Gold Trust (GLD), the world’ largest gold ETF, and show that GLD has accumulated just over 10 tonnes of gold in February – the first monthly gain since December 2012 when it put on 1 tonne. Between the beginning of January 2013 and the beginning of February 2014, this single ETF had shed a massive 557 tonnes of gold as investors deserted it in droves, supposedly in favour of the seemingly ever rising general equity markets – in hindsight a smart move over that time period – but with, apparently, all that physical gold so released, and much more, heading to China.
So what’s the specific significance of the February rise in GLD holdings. It looks like it is beginning to represent a turning of the tide which has been diminishing Western gold holdings while washing them up on Eastern shores. If the February GLD level of growth continues through the year this would mean about 100 tonnes of inflows into the ETF – which in turn would mean a reduction of around 650 tonnes of physical gold availability on the global gold market in comparison with 2013. One can probably assume that what we are seeing in GLD figures will be matched in percentage terms in other gold ETFs – perhaps to the tune of a further 200-300 tonnes or so over a full year (if the trend continues), which would effectively mean somewhere between 800 – 1,000 tonnes of supply coming out of the global marketplace for physical gold in 2014.
As we have pointed out here before, analysts like those of Thomson Reuters GFMS have suggested that the weakness in the gold price in 2013 was almost entirely due to the huge volumes of gold sold out of the ETFs into the Western markets, where it has been COMEX which has largely been setting metal price levels. Demand has been enormous in China in particular, but Eastern buyers have not been rocking the boat by chasing gold prices upwards to any significant extent quite happily absorbing all the gold that the West has been sending their way at what they seem to be seeing as bargain prices.
Thus, if what we are seeing in GLD in terms of purchases into the ETFs, rather than sales out of them, continues, and if eastern demand remains at high levels too – which it appears to be doing so far – the turnaround in physical gold availability will be very large and initiate a squeeze on gold availability in the West. This would likely be seen in the further fall of registered gold (that available for physical delivery) tonnages in the COMEX warehouses and the possibility of a default on COMEX with regard to physical gold delivery does start to loom on the horizon.
COMEX is a manipulated market – as all markets are to a greater or lesser extent – but the fall in physical gold warehouse stocks looks to this observer to be reducing the capability of the big gold holders to keep knocking the price back to protect some very large short positions in the yellow metal.
Now the February ETF figures could yet prove to be a false dawn, but so far the gold price seems to have been little moved by the Fed taper. Although Fed chairman Janet Yellen’s latest statement on Fed policy still suggested that the massive bond buying programme could be completed by the Fall there were also some doubts expressed on the state of the U.S. recovery with the implication that the taper could itself be tapered. And it has been a professed certainty that the U.S. economy will be showing substantial improvement this year leading to the total removal of Fed bond buying that has led some of the most vociferous bank analysts to predict further gold price falls – not that this would necessarily lead to a fall in gold price anyway.
Now these same analysts have far better economic credentials than this writer – a mere mining engineer with an interest in precious metals markets – so one shouldn’t knock their views unduly. But they have also been hugely wrong in the recent past. Almost all, for example, were predicting a decent gold price increase for 2013 a year ago for example – and how wrong they were in that.
Thus, taking an engineer’s pragmatic viewpoint, should ETF inflows continue, and Chinese and other Eastern buying hold up – admittedly two big ‘ifs’, but neither that unlikely either – the squeeze on supplies of physical gold that would develop should see prices rise over the year. Whether it can get back to its 2012 highs over the period is, however, perhaps more than the gold investor can hope for this year, but should this trend noted above continue, one can’t rule that out for 2015.