"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


Thursday, October 30, 2014

Falling GLD Inventories - A Warning Sign Ignored by Gold Bulls

We have been painstakingly detailed in providing very regular updates and charts for the readers of this site of the reported holdings in the big gold ETF, GLD, for some time now. The reason for this is clear - like it or not, approve of the ETF or not, it is a proxy for Western-based investment demand for the yellow metal.

The FACT is that reported holdings have been plummeting lower even since peaking out two years ago. Yesterday saw yet another reduction in those holdings with the total tonnage now at a measly 742 tons. I saw "measly" because the trust is now at reported levels last seen in the first week of October 2008! Let that sink in a bit.

As the holdings have dropped, so too has the gold price, right along with the share price of the gold miners. There is nothing mysterious about this. It has been there right in front of everyone's eyes who were open enough to recognize the obvious.

What is so tragic about this is the number of innocent people who have lent their ear to the numerous peddlers of nonsense out there who assured them that this drop was ultimately bullish for the metal because, as they assured them, "the gold is being drained to go East". Whether it goes East, or North, or South or the earth's core, is irrelevant. It is being sold here in the West as money managers will not buy gold unless they see a very good chance of it moving sharply higher in price. It throws off no yield and therefore, any gains must come from capital appreciation.

In an environment in which most commodities are falling in price, and one in which the Dollar is holding up fairly well,  and one in which inflation fears are nowhere in sight, there is not enough Western-based investment interest in the metal to push the price higher. The East can buy all the gold that they want but without an accompanying demand surge in the West, the best the Eastern-based buying can do is to slow the descent of the metal or keep it from plunging even more sharply than it otherwise might have done. It takes hot money flows from the West to generate a bull market in gold, or in any other market for that matter and the simple truth is that those money flows are MIA when it comes to all things gold for the moment.

Gold has fallen below chart support near $1210 and is now trading below psychological support at $1200. Once more it appears the bears want to go down and test that now triple bottom support at $1180 to see if they can crack it this time around.

Note ( this is for you Hubert!) gold did fall to the lower Bollinger Band after falling below the median line yesterday. The bands are widening out suggesting that there is more to come yet to this move lower. Also note that the ADX line is beginning to slightly rise hinting that a trending move is the works. I do want to point out however that the ADX is well below the 20 level at this point so unless $1180 is clearly taken out, the market is officially still in a broad range trade with $1180 the bottom of that range.

If $1180 goes, look for $1150 in short order as a massive amount of hedge fund long positions will ALL BE UNDERWATER. With silver getting obliterated and with the mining shares disappearing from off the face of the earth, a lot of longs are in trouble.

Maybe the bulls can stave off any further downside but they had better flex what is left of their dwindling muscle very soon.


  1. Hi Dan,

    Any comments regarding silver? It's down quite a bit today and I was wondering what its next support level is. I assume $16... it's not too far from that now. Thanks!

  2. Capitulation to some degree seems probable by years end in GLD/SLV and GDX etc as year end selling in those vehicles locks in the tax write offs for next year imho.

    It could get even uglier at years end I think.
    Thanks for the write up and effort Dan.
    Hopefully some some folks who visit here check out the donate button above and leave a tip of appreciation for you.
    I only mention this because I know Dan won't. That trait speaks for itself.

  3. Dan, thanks for your insights. I am sitting on 70 GDX puts that are up 300% right now. If gold breaks 1180, that trade is going to reverse all the losses I have suffered from listening to the perma bull crowd over the last 3 years. Thanks for giving me the courage to put my money on the correct side of the market for once!

    1. Michael and Lauren;

      I am very, very happy to learn this. Congratulations for being a good student of the markets!

      Those who ignored all the false theories, the claims made by the self-appointed gold expert whistleblower and his fraudulent claims, the backwardation claptrap, the negative GOFO rates, bank bail ins, blah, blah, blah and just approached the market objectively and with an open mind have not lost a penny on any physical gold they might have owned because they have hedged it all. They also have been able to profit and actually made money on the decline in price. so they have the best of all possible worlds - they own physical gold for insurance, they have suffered no losses on that physical gold because of proper hedging and they have made money at the same time. That is how professionals operate in distinct opposition to the hucksters, carnival barkers , "gold and silver short squeeze is imminent " deceiver and other assorted flim flam artists that infest the world of precious metals.

      Mr billionaire fund manager, who is always cited as some sort of expert for some strange reason when it comes to price predictions on the metals, is now mr former billionaire and merely mr. millionaire.

      Keep an eye on the price action in the metal to close out this week.

  4. Gentlemen, I always enjoyed Dan articles as they are very balanced and informative. Thank you Dan for all your effort and contributions. I benefited a lot from your articles. I also would like to share with all of your readers and yourself a huge web app I designed which is free on the net at www.yamasuta.com. YaMasuta is a robot as you said we are in the computer age of trading. It is a robot that analyses all public companies and currencies in 33 countries with 57 exchanges. It does so every day after market close. I would all of you to try it and give it a run for the next 6 months to see how it works and compare it with your strategy.


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