"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat

Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput


Saturday, June 1, 2013

Gold ETF, GLD, Bleeding Inventory

Traders and Hedge Fund Managers continue to monitor the largest gold ETF, GLD, for clues to its next direction. For the entirety of this year, 2013, the amount of tonnes of gold in GLD has been dropping - rather sharply at that.

Regardless of where this gold is going, and that is indeed a legitimate question, the facts are that hedge funds, which are the drivers of today's markets, are leaving GLD in droves and taking those funds to play with equities where the big returns are currently coming from.

I would watch to see if this drawdown of gold stores in GLD shows some sign of abating before getting too bulled up about gold. Please see that Goldman Sachs Commodity Index chart that I posted earlier today. One cannot make much of a case for inflationary pressures building in the economy when the commodity complex is not confirming it!

If you look at that chart, and look at this chart, you can see that the biggest speculators on the planet are currently not at all enamored with gold the way that they had once been. When they fall in love with the metal again, and we will know that by monitoring this chart, we will see the results in higher prices that are sustained alongside of dip buying on price retreats. Currently we have specs SELLING RALLIES in gold and covering on moves into support levels when it appears that support will not give way.

Meanwhile, we continue to see many in the gold community continuing to remain stubbornly, wildly bullish. This is more wishful fantasy than solid analysis. Expect a broken clock to be correct at least twice a day. At some point the gold bulls will have their day. Those who have to trade for a living however would do better to try to ascertain the future actions of the hedge funds, because it is that group which will drive the gold price. As long as they are in a selling mood, rallies will not stick.

What is needed is something that changes the complexion of the technical price charts. When that occurs, the computer algorithms of the hedgies will return to buying. Then and only then can we get excited about a SUSTAINED move higher in gold.

One of the greatest mistakes many would-be traders make is allowing emotions, hopes, wishes, etc. to cloud their judgment of what currently is. Wishful thinking is not a trader's friend. If you want to survive in these markets, and prosper, you must become a hard-nosed realist able to master your emotions. Show me an emotional trader, and I will show you another failed statistic. Trading is a business. Treat it that way. Get control of your emotions, both wild-eyed optimism and excessive pessimism. Neither of these are your friend. Read the price action from the chart and then form an opinion. Far too many form their opinion and then go the price chart and try to make IT (the price chart) conform to their opinion. Novices do this and fail. Professionals do not. The play the cards that are dealt to them.


  1. Dear Trader Dan,

    Thanks for another great post.

    I would like to get a better understanding of the below statement,
    "...ascertain the future actions of the hedge funds, because it is that group which will drive the gold price.", and at the risk of perhaps asking a noob question; What influence, if any does the continued strong physical demand from say China and India (**Asian markets will see record quarterly totals of gold demand in the second quarter of 2013-WGC) have over the price of gold?


  2. Hi Dan –

    I appreciate your balanced perspective on gold, as while I am extremely confident that it will appreciate significantly in the mid-term, many pro-gold commentators are over-the-top in their near-term pronouncements.

    I certainly agree with your basic distinction between those who are trading gold, and those who are accumulating and/or holding over a longer-term horizon. Having said that, I have a very difficult time imagining that gold won't appreciate significantly within the next two to three years.



  3. Very sobering analysis.

    Bernanke has succeeded in setting the stage for deflation and goosing the U.S. Dollar.

    So much so, that he now has ample maneuvering room to launch yet another "extraordinary measure" to goose the credit markets and stocks when needed.

    He has perfected the "Wash, Rinse, Repeat" Perpetual Motion Machine whereby one crisis after another results in deflationary fears which allows him to print even more money and launch stocks over and over again, like he has already done 10 times the last 4 years.

    Eventually, the emerging markets will catch fire and gold and commodities will launch with it.

    By the time gold reaches $1,900 again and the CRB Index is back up to the high end of the range, the Dow will probably be at 17,500 and then it will be time to "jawbone" things back down to reset again.

    How simple is that?

    1. So simple that it is incorrect. The Fed is already losing control, and the notion that it will be able to continue to successfully and safely exert targeted influence for much longer is a pipe dream.

    2. No one wants deflation, Ben Bernanke least of all. In simplest terms deflation favors saver not debtors, the the U.S. and western world is in debt... The strong dollar is debatable--I'd say stable... I'd imagine he's sweating bullets about increasing yield / topping of bonds.

      Interesting article in the New York Times this morning by Gretchen Morgenson--excellent journalism. Here's the rub from FDIC. while banks reported 15% increase in income over same quarter last year, lending declined 2.2%, net interest margin fell to 3.27% from 3.5% + earnings increase came from fees and lowering loan loss provisions. Loan loss provisions are at 2007 levels, while delinquent debt is now at 3.4% whereas it was at .8% in 2007!


  4. Thanks a lot, Dan.

    "Far too many form their opinion and then go the price chart and try to make IT (the price chart) conform to their opinion."

    So true.

    "Read the price action from the chart and then form an opinion."

    Here is my attempt.

    - we still seem to be in the scenario where the median of the red pitchfork acts as a magnet on gold's prices, while volatility decreases and prices hover around it. Converging Bollinger bands also support this for the time being.

    - there is a short term pitchfork in blue, and we will see soon if bulls can find enough strength to stay inside it. If not, then we stay close to the red median again, hopelessly rangebound between probably the two orange segments as long as volatility decreases. We have to wait for an impulsion to see a break, a move, one way or another. I can't forecast anything up or down short term as long as prices seem to be ready to fall asleep on the red median.

    But I keep a close eye on the 22 $ support level for Silver, and for gold, on the Registered / Eligible stocks of the Comex. At the speed they are also being depleted, they'd be in default within a few months if they kept selling at the same pace. Something's gotta give soon, in a matter of 3,4 months max. Meanwhile, breakdown under 1340 always possible, so I remain careful and wait for an impulse, an acceleration, an increase in volatility.
    Have a nice evening,

  5. I like the gloomy outlook. This keeps the longer term accumulation window open.

  6. This comment has been removed by the author.

  7. Back on December 13, 2008, Trace Mayer of Runtogold.com wrote their are problems with the precious metals' prospectuses, concluding: "For those desiring to trade paper gold the SPDR gold ETF, GLD, and the SLV vehicles may satisfy those requirements. But for those who desire the ‘sweat of the sun’ or ‘tears of the moon’ in order to own the ultimate form of payment and therefore hearken to Chicken Little’s warnings and protect their assets then the GLD and SLV vehicles appear extremely deficient. Alternative forms of holding allocated gold bullion exist that are affordable, secure, convenient, trustworthy and not subject to counter-party risk. For these reasons including (1) the quality of the gold is at issue, (2) no audit of the physical metal is permitted, (3) counter-party risk impregnates the investment vehicle and (4) there are strong conflicts of interest with complicit players in the central bank gold price suppression scheme; the SPDR gold ETF, GLD, and the SLV appear impotent in reducing inflation or counter-party risk. These are not risks to take during The Great Credit Contraction."

    We know GLD redemptions accelerated this year just as other markets experienced reversals or broke records.
    Logically, GLD tonnage SHOULD be dropping, what's left of it, so a legitimate question is where did it go?
    One answer is holders of the ETF certificates sleeping less restfully than before.
    Another is they saw delivery delays, wait lists, Swiss custodians stalling, and the Hong Kong Exchange and ABM Ambro defaulting.
    ETF's as proxies pretend to protect portfolios and pensions- HSBC, the gold ETF GLD (SPDR)custodian, is a known money launderer and facilitates the silver morning fix and LME leveraged transfers from it's home in London.
    The SLV fund custodians, JPMorganChase, being bullion bankers, primary dealers of the Fed, a large commercial, money-center investment bank and a functioning part of the official 1) President's Working Group on Financial Markets
    2) Exchange Stabilization Fund, and
    3) Counterparty Risk Management Group,
    would be inclined to employ the silver in it's exchange traded fund, shorts on the fund or other means of influencing liquidity or crisis management in the largest market in the world- gold, by it's association with silver and the capacity to fill depleted accounts with discounted metals.
    Some of the largest investment funds like George Soros, were reported to be divesting GLD holdings as well. Later they reported that same week Soros invested 9 to 10 times that sum back into gold equities. Another large fund took delivery of gold bars.

    1. Regarding Soros, did he divest GLD shares or redeem them for physical gold? As Dan said with respect to where the gold is going, "...that is indeed a legitimate question, ..." but for now we can only speculate.

  8. "Hedge funds and money managers increased their bullish bets in gold futures and options for the first time in four weeks, a report by the Commodity Futures Trading Commission showed on Friday." Reuters

    Not sure how accurate the above is, but somebody here maybe able to dissect the report?

  9. Re: My typo- The correct spelling is ABN Amro, not "ABM Ambro".
    Lawrence Williams on Gene Arensburg's gold analysis: http://www.mineweb.com/mineweb/content/en//mineweb-gold-analysis?oid=192631&sn=Detail
    'Bazooka at a knife fight' – the April 12 gold takedown – Arensberg

    The chances of the initial gold sale which precipitated the April 12 gold price crash as being 'legal' were infinitesimal. Gene Arensberg does the maths.
    Author: Lawrence Williams
    Posted: Friday , 31 May 2013
    LONDON (Mineweb)

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  12. Dear Dan, Dear Community,
    Great Blog!

    Sorry, I can't bring the figures of the CFTC report
    into accordance with the (green) chart of the USD-Index.
    What is wrong?

    CFTC-figures as of May 28th,
    Options&Futures, Long Format
    CFTC Code #098662
    Long/Short-Pos, net, '000(k):
    Dealer&Intermed: -28.4
    AssetMan&Instit: +7.2
    Leveraged Funds: -5.5
    Ohther Reportbl: +15.2
    Nonreportbl Pos: +11.5

    The (green) Chart shows (rounded):
    HedgeFunds (blk): +47
    Commercials(red): -58
    Gen.Public (blu): +11

    * How to combine these successfully?
    * Different week?
    * Different contract?
    * Different report? (There is only a Long Format)
    * Strange: O&F are mostly the same figures as F only(?)

    Can someone help?
    Many thanks in advance
    Regards, Alex

  13. Even more sorry now!
    Just found it under "Legacy". I never use them.
    Interesting though, that the Disaggregation creates a very different picture by reporting more detailed,
    and that it is nearly impossible to re-combine!
    Thx, Regards

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