Updated version of an article published on sharpspixley.com on Monday. To read original article click here
In a post a few weeks ago we suggested monitoring inflows or outflows of gold into or out of the big SPDR Gold Shares gold ETF (GLD) as a way of judging big money sentiment on gold (See: Watch GLD for gold price guidance) and for a corresponding gold price direction. And, after a series of consistent gold withdrawals from the ETF, this does seem as if it may have turned around sharply last week at almost exactly the same time as the big fall in the equities markets commenced. Last Tuesday, for example, 8.82 tonnes of gold were added into GLD – the first increase since July – and after a couple of days of zero movement in the ETF, another 5.65 tonnes of gold were added into it on Thursday. the additions continued over the weekend with a further 4.12 tonnes added. These are not insignificant amounts. 18.59 tonnes of gold is equivalent to around the annual production of the world’s 32nd largest gold producer last year – and this amount was added only over a 6-day period. This week’s continuing GLD figures will thus be particularly worth watching to see if the build-up continues – and if it does watch out!
Many observers have suggested that for a sustained increase in the gold price this would be accompanied by a significant downwards correction in the general equities markets which are seen by many as overbought, with such a correction perhaps overdue and inevitable. But beware of a really big downward move in equities should this happen, as some commentators suggest. Such an occurrence could bring precious metals down in price too as happened in 2008. The prospect of this may have lightened somewhat in comparison with the last big downturn as many institutions are out of any substantial precious metal holdings given they have been somewhat out of favour as an investable asset in the past several months. And even if they do drop in price alongside equities they will likely recover far faster – as in 2008/2009.
Today has seen a bit of a pick-up in equities in most markets, although gold has pretty well held on to its gains. What is too early to tell though is whether today’s equity recovery is a shortlived bounce, or a start of the continuation of the bull market in general equities. It’s perhaps worth reading the transcript of the Stephen Leeb interview published on this site a day or so ago. Despite a slightly rambling interview, Leeb is one of the smartest guys around and he reckons that if this recent move in equities is not the start of the long-awaited crash, the latter is not far ahead. We shall see in the next few days.