I would urge my readers to take some time perusing the contents of the WGC's most recent report on supply and demand in the gold market. It is a most informative read.
I wanted to pull a short extract from their section on ETF's as I found their analysis remarkably similar to mine when it comes to GLD for instance.
From their GOLD DEMAND TRENDS, page 6:
"ETF outflows were far smaller in scale than those in Q3 last year. As of end-September, ETF holdings have declined by a little under 84t, equivalent to just 12% of the outflows over the same period of 2013. This lends weight to our analysis - as laid out in previous research - that more tactical investors have largely exited and the remaining base of ETF positions are held as strategic investments.
There was, however, little during the quarter to encourage fresh investment in ETFs as investors kept their gaze locked on the US economic scenario. The prospect of US interest rates remaining low 'for a considerable time' and the widely-anticipated end to quantitative easing( QE) by the Federal Reserve eclipsed all other considerations. The soundness of gold's underlying fundamentals was widely acknowledged, but in itself offered little fresh impetus to drive an increase in investor positions."
Is this not exactly what I have been saying here? To launch gold into a soaring bull market, as the gold perma-bulls continue to assert it would be were it nor for constant price manipulation by banks acting as agents of the Fed, requires steady inflows of investment capital ( HOT MONEY). That requires a CHANGE IN SENTIMENT towards gold which currently is not there among the Western-based investment crowd.
The continued drawdown in GLD is EVIDENCE of this lagging Western-based investment demand for the metal. Those types are moving money into equities where the big return on invested capital has been made this year.
When the WGC speaks of "tactical investors", I substitute hedge funds. Those are short-term oriented, market timing and MOMENTUM-based trader/investors. They are simply not interested in the metal at this time. Many of those entities are selling their holdings in GLD, which are producing nothing in the way of gains and moving those funds into equities and putting the money to work there. That is simply smart money management. After all, hedge funds get paid to produce profits - not sit on invested monies which are going nowhere and potentially even losing! That is why you see them shorting the metal.
The ones who are interested, as the report says, are more long term oriented investors who see gold as a strategic asset to hold in their portfolio. Many of us at this site fall into this category but we are with the "tactical investors" when it comes to reading the price charts and understanding the current rather poor sentiment towards gold among traders and short term oriented investors.
Changing the theme slightly now, I am especially interested in the section on "hedging". I always find it fascinating to see how little downside protection most mining companies manage to put in place for themselves. Essentially they become businesses largely involved in speculation rather than mitigating risk and locking in profits. It is a strange business model that most commercial firms would have some real problems with.
Perhaps that is one of the reasons that their stock price sink so rapidly. Investors realize that many have few, if any, strategies in place to mitigate price risk to the downside and will punish the share price mercilessly as a result.
Here is the link to the report....
"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
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