How much further can SPDR Gold Shares (GLD), the world’s largest gold ETF, continue to bleed gold without adversely affecting the metal price? It has shed a hair over 75 tonnes since its 2017 peak some 6 weeks ago, 61.8 tonnes in the past month alone and over 162 tonnes in the past year. It is now at a level not seen since March 2016 when its holdings were rising sharply, yet the gold price over the past week or so has been trending upwards. This is a huge contradiction in the yellow metal’s normal price movement. We are either heading for a very sharp price reversal – or if the current price level around $1,260 holds – a very significant turning point leading to significant gains if the current falls in the GLD holding are reversed.
What makes the GLD performance even more anomalous is that the other large U.S. gold ETF – the much smaller iShares Gold Trust (IAU) – has actually added around 2.5 tonnes of gold over the past month while GLD has been moving sharply in the other direction. Year to date IAU has added 14.7 tonnes to its gold holdings, which stand at 210.87 tonnes, while the GLD holding, currently 791.88 tonnes, has dropped by a little over 30 tonnes over the same period. The performance differences are hard to explain given they are both serving the same investor market.
Yesterday in an article on the www.sharpspixley.com website we included the following quote from Ted Butler in trying to explain the big fall in the GLD gold holdings “”The most plausible and, in fact, only explanation I can come up with is that some large entity is converting shares into physical metal for the purpose of preventing share ownership from rising to or above reporting levels. When a big shareholder converts shares of SLV or GLD into metal, the shares no longer exist and, therefore, don’t need to be reported to any regulator. Likewise, direct physical ownership of silver or gold needn’t be reported to anyone no matter how large the position may grow. (This is another major factor behind why JPMorgan decided to buy physical silver). Again, a large entity amassing a large physical position in silver or gold on the sly is not bearish for price.” (See: GLD bleeds 71.58 tonnes of gold in just over a month).
What else could be behind the fall in GLD gold? We have also noted on the Sharps Pixley website that the major Swiss gold refiners, which dominate the global remelting and re-refining market are, anecdotally, struggling to source enough physical gold to meet demand as gold out of them continues to flow very heavily to Asia and the Middle East – See: June Swiss gold exports: 90% moving east). They have to be sourcing their gold from somewhere and they exported some 162 tonnes of gold in June alone – 90% to Asia and the Middle East. Now maybe there are enough ‘friendly’ holders of GLD gold shares to lean on to supply them with bullion when physical gold is in short supply. The UK was the biggest source of Swiss imported gold in May, although was superseded as the biggest exporter of gold to Switzerland in June by the USA, but most GLD gold is vaulted in London. Perhaps we will see the UK as being again the biggest exporter of gold to Switzerland this month which is when most of the GLD falls have occurred when the next Swiss announcement comes out in late August? Certainly bullion coming out of the world’s biggest gold ETF could well be a principal source for all this gold heading East.