Raiding the GLD

Time to broach this subject again.

Just yesterday, the GLD saw a withdrawal of 8.88 metric tonnes. This followed a drawdown of nearly 23 tonnes on Wednesday. In fact, since the start of 2013, the GLD is now down 59.61 metric tonnes or 4.42% of "inventory". 

Hmmm. Now where has that gold gone?

  • Has it simply been returned to the Authorized Participants' vaults as investors reduce their exposure to precious metals?
  • Have GLD investors liquidated shares and taken delivery?
  • Or, as argued back in November, are the APs using the GLD as a store of gold that they can easily access anytime they struggle to find legitimate physical metal to deliver to clients demanding immediate allocation and delivery?

If the third bullet is true, then GLD drawdowns would be symptom of very strong, global physical demand.

So, for your consideration, let's revisit this issue. First, here's a reprint of the points that Andrew Maguire made initially. The full link can be found here:


The bullion banks finance their ‘physical inventory’ by leasing it or selling it to GLD and SLV shareholders/investors, then the bullion banks in turn use these ETF’s inventories as a ‘flywheel’ to both manage and leverage their physical reserves. For this walk-through, I will use GLD as an example. (One can substitute SLV for all that is described below relating to GLD except the basket sizes are smaller, constituting 50,000 shares).

Baskets of GLD shares are bought and sold through a limited number of Authorised Participants. The authorised participants, (AP’s), are JPMorgan, Merrill Lynch, Morgan Stanley, Newedge (a joint venture between Société Générale and Credit Agricole CIB), RBC, Scotia Mocatta, UBS and Virtu Financial. This is how it is supposed to work. The size of each GLD basket comprises of 100,000 shares, each share representing just less than 1 troy oz. The AP’s, transfer ALLOCATED physical gold to the trustee who in turn creates the required number of new baskets of shares and then transfers these newly created shares back to the AP. To redeem the shares for physical gold or silver, the AP’s transfer any number of the baskets of 100,000 shares back to the trustee who then redeems these shares and transfers allocated gold back to the AP.

This is all well and good on the face of it, but there are a number of ways this ‘allocated’ gold backing the shares in the ETF can be diluted /hypothecated in order for the bullion banks to ‘manage’ their physical reserves.

If, as is often the case, there is insufficient allocated inventory available to the bullion bank at the current Comex driven & discounted spot fix price to create the necessary new GLD shares backed by allocated gold, then it is possible for a bullion bank to borrow short these GLD shares from the ETF instead of providing the required Allocated physical to the trustee to meet this obligation thereby ‘fly wheeling’ this physical demand in order to meet obligations elsewhere, likely at the day’s gold fix. This obviously has the effect of manipulating price lower vs. the true immediate supply demand fundamentals as no allocated physical metal has to be bought on the open market at that days fix to meet this new share demand as should be the case.

This is now the point where transparency evaporates. The AP claims to be Short GLD while concurrently claiming to be backing it with an equal size long ‘UNALLOCATED’ spot gold position. However, LBMA unallocated gold accounts are run upon a fractional reserve requirement and leveraged around 100/1 so there is very little need to back this transaction with any real physical at this point; this is left until later as explained below. To unwind this short GLD position, the bullion bank has to ALLOCATE the required amount of unallocated gold and then transfer this gold back to the trustee thereby receiving back the required # of shares in order to repay the original GLD shares sold short.

However, in conjunction with concurrent concentrated short futures positions, the sole object of this entire charade is to assist in depressing the price of gold at times of strong physical demand so that the futures price can be capped, usually at key inflection points where the price would break out and also swamp the very large concentrated Comex short positions. If this were not the case, the bullion bank would simply bid up that days fix price until it reflected that days true supply demand price levels for that fix and provide allocated gold to meet this real demand at that higher price.

The resulting distortion now created between the real and paper market price is exacerbated through the use of heavy position concentration and leverage in the futures and derivatives markets, where these very same bullion banks then seek to profitably repay the shorted GLD shares at a lower price at the point at or below where the lines cross profitably. This then puts these bullion banks in a position to finally spot index UNALLOCATED gold against this naked short position only then moving to buy the now discounted unallocated gold into the Comex contrived dips. These discounted unallocated long spot index positions are then ALLOCATED at the upcoming fix, enabling both the repayment of the GLD short position at a profit but most importantly controlling the rise in price against much larger derivative positions elsewhere.

Conversely, as evidenced by the steady 12-year stair step rise in prices easily observed in the daily and weekly charts, despite this many-year capping, we have also seen an ever larger and untenable LBMA unallocated short positions grow to what I now consider to be extreme danger levels. The reason is as follows: When the Bullion bank needs to make good on the unplanned/unanticipated CB and sovereign physical allocations at the fixes, they have regularly achieved this by going long GLD vs. short/selling UNALLOCATED gold. They then immediately turn around and transfer the required number of baskets of GLD shares to the trustee and receive ALLOCATED gold in return. Instead of settling/covering the short UNALLOCATED leg with this ALLOCATED gold, they are forced to satisfy these CB and Sovereign allocations by providing them this metal instead. The longer term price charts reveal this stair step higher, whereas we see no reduction, in fact from 2008 an increase, in the naked short Comex, (and unallocated OTC), bullion bank positions.

I hope this has been helpful in providing an insight into the internal dynamics of the ETFs and how the bullion banks continue to operate in the shadows.

Quite a few folks found this explanation a little too technical and slightly confusing. To help the cause, a few days later I took a stab at deciphering Andy's message:


Finally today, please allow me to take a stab at explaining in greater detail the "Guest Post" from Andrew Maguire. I posted it on Wednesday as we were leaving for Thanksgiving and I can see now where it caused some confusion. As you know, one of my favorite techniques for explanations is the chronological layout so let's give that a try. Additionally, I think I'm laying this out accurately. This is how I understand it. I'll check with Andy on Monday to ensure that this is at least close to being accurate. If it's not, I'll post some additional clarification then.

  1. The "Authorized Participants" have a special relationship with the fund whereby they issue metal, 100,000 ounces at a time, to the fund in exchange for 100,000 share blocks.
  2. This should function as a two-way street where the AP can get its metal back by redeeming shares and the AP can also supply additional metal in exchange for additional shares. THIS, HOWEVER, IS WHERE THE TRICKERY AND MANIPULATION BEGINS.
  3. On big UP days in paper price, there is often a big physical demand in London and a big demand for additional shares in GLD.
  4. This is a double whammy of demand. The Bullion Bank (and Authorized Participant) should have to not only supply metal at the London allocation but this same BB/AP might also have to deliver metal to GLD to cover all of the newly-issued shares.
  5. I think you can see where that's a lot of metal and, in an environment of limited inventories, rapid BB/AP supply depletion would lead to shortages and even higher prices.
  6. So, here's the trick they employ to manage the situation, even doing so at a profit: The GLD delivers the gold back to the AP without the AP actually redeeming their shares. The AP is considered to be "short" the shares, instead.
  7. These shorted shares provide the "offer" against the investment world "bid" for GLD shares that day on the NYSE. Since no new shares are needed to be created that day, no new demand for physical deposit is created, either.
  8. On the other side of this trade, GLD delivers metal to the AP as if it had redeemed the shares, though. The AP uses this metal to settle the physical allocations for that day.
  9. So, where there should have been two, separate demands for physical, the demand was met by short-selling GLD and then using this GLD metal to meet allocations in London.
  10. The effect is then chronicled by Harvey and others as "gold went up $20 but, mysteriously, GLD shed 2.72 tonnes".
  11. Here, then, is how they reverse these "trades" and return everything to where they were. The BB/AP that is short the metal to the GLD needs to put it back in at some point. The next time a paper price raid is effected on the Comex, the AP itself takes delivery of some metal in London.
  12. This metal is then returned to the GLD in exchange for a "covering" of it's short position.
  13. This, typically, takes place on a DOWN day where Harvey et al notice that "though gold declined $15, the GLD added 2.72 tonnes of metal today. Go figure."

Anyway, I hope this helps explain the process. Again, the Bullion Bank that is also an AP of the GLD can "flywheel" metal into and out of the GLD and/or SLV anytime they need to in order to meet physical demand elsewhere. In the process, the BB/AP conveniently provides liquidity for GLD/SLV share demand, which negates additional GLD purchasing which would have otherwise been necessary. It's a true WIN-WIN-WIN for the BB/AP as they are able to cap and control price while appearing to have no problem meeting London demand and then they turn around and cover all the positions at a profit on the next bout of price weakness.

Again, THIS IS NOT SUPPOSED TO BE HOW IT WORKS. The banks are supposed to supply metal to both the GLD and the London buyers. There is not, however, sufficient supply to make this happen at the current price levels. So, instead of allowing price to rise to the natural equilibrium of buying and selling interest, the BB/AP uses the tricks outlined in Andy's guest post to manage and cap the situation. On the bright side, THIS CANNOT CONTINUE FOREVER and, WHEN it fails, the reset in price will be spectacular to behold.


By the time the next week rolled around, there was an active discussion on the internet regarding the accuracy of this analysis. (No doubt this post will reinitiate the "discussion" and bring out many of the same commentators.) Here's a link to the follow-up discussion, posted a few days later. Before you form an opinion on the matter, you'll definitely want to read both sides of the issue:

So there you have it. All of this should all make a very interesting reading assignment for you as we wait for today's GLD numbers. Could there be another huge drawdown? If so, what does it mean? Does it even matter? I look forward to reading your comments.


p.s. Andy just recorded this morning another interview with KWN. Be sure to check that site later today for the full interview.


¤'s picture

Visual Reference: GLD

Here is a selection of GLD Price Charts over various time frames:


SPDR Gold Trust (GLD) 1 Day Price Chart



SPDR Gold Trust (GLD) 1 Month Price Chart



SPDR Gold Trust (GLD) 6 Month Price Chart



SPDR Gold Trust (GLD) 1 Year Price Chart



SPDR Gold Trust (GLD) 2 Year Price Chart



SPDR Gold Trust (GLD) 5 Year Price Chart

silver66's picture

End of Great (discredited) Keynesian Experiment :-)

Here is a link to an article by Scott Minerd, chief investment officer of Guggenheim Funds. John Mauldin referenced him in his last e-mail.

good read and insightful


AlexP's picture

Probable all time high run scenario for Gold and Silver

I think in order PM run up from exiting channels ($1526-$1800, $26-34.50), they need to make final spike low below these channels (let’s say below $1500 and $25.50 intraday). It will create enough energy for huge reversal in opposite direction. It may happen next week or next month, nobody knows…

But without this spike low everybody is in these channels, just not enough energy …

Please advise what you think…

silver66's picture

I like his attitude


silver66's picture

Just posted to Apples movie trailer website

If this is not main stream, I don't know what is


SilverSurfers's picture


nice charts.

Look at May 11 gold, hitting what 1550 .... test, then retest break out to 1920 .....,

and that 1550 mark, became support, typical TA action, despite all the whistle blowing.

At that time, silver goes to retest all time highs at 50/oz, and should and did fail there at the 1st attempt.

two years in the making, the handle formation, in silver, while gold hops along that new support at 1550. Silver, on the down side hits what, 25ish, for 50% decline. A very nice correction, and the consolidation is holding in here, at 28.50, the new base line, of the cup-handle bowl formation, in progress. 

It is particularly weird .... that the Rep/Dem are at an impasse on the no-budget sequestration, at this point in time. While supply/demand affect, manipulation affect, it is that dollar mess and the governmental impasse that adds fuel to a fire, and may be THE trigger a PM rise, as it should in econ uncertainty as of this day.

Just seems like, 1550 gold support, is solid, and silver is carving out that monster bowl handle, with 25 support moved up to 28.50 just now, which if it holds, and I think very much it will, the JPManipulators are retreat to the next level up. Despite a price crash to 10$ in 08, at near 30$ few years later, the head fake confirmed, and the bottoms are moving up, dispite the interference.

meh .... this is going to be wild, 50$ Ag, 2000$Au, and when the fun really goes wild.

So, we testing 1550 and 28.50, and all seems on track, for the econ train wreck, and the PMs leaving the station, with the gov boys with thumbs up the dark holes.

All aboard PM train!.

The silver bullet train, this time around, with a gold cabose, to be sling shot by the loco.

Silver will eventually confirm gold's 850/0z break out ...... in time, breaking out above 50, to sling shot gold. Gold holding 1550, was silver's life line. Now is the time for pay back, and silver cracks that sling shot whip. 

Turd Ferguson's picture

Another 9.64 mts leave the GLD on Friday!!


This is getting ridiculous. That's 43 mts in the past week alone and now over 70 metric tonnes YTD!!!

The Vet's picture

over 70 metric tonnes YTD!!!

Somebody needs real metal and the GLD stash is all that they can get hold of.  The short position for GLD is about 65 tonnes as at the last reporting period (probably higher by now) and all of the shares sold short can effectively be be converted to real metal by an AP and delivered as real metal without having to go out into the spot market and beg for someone to supply you with real gold to meet the paper promises.

I know that some indignant insider will come back and say that "borrowed" shares can't be redeemed for physical, but that is simply BS.  Shares don't have tags attached saying "I'm borrowed" and once the HFT traders have cycled a few million shares a second through their books who can tell one share from another.  Any parcel of shares just becomes an omelet, with an indeterminate mix of ETF issued shares sourced from legitimate long stock holders and short sold stock (effectively either counterfeit stock or borrowed - double counted stock) which can never be unscrambled and which egg is which can never be determined.

tyberious's picture

Ben Davies (Part 2/2): on the gold price and inflation

TomMack's picture

LCS update

no 90% same store as last week that was pretty flush with 90%.  i did manage to scrounged $5 bux face washingtons quarters for 107.10 (21.42 x face value).  they usually let me slide a on the .10 but the jakaroo held me up for the dime.  he said there were nothing but buyers all week.  i did see someone (30 something yrs old) in there with a couple of boxes of coins in collection books talking about estate executor and escrow. 


ps  btfd

for all the trolls

The Vet's picture

Jasper's scenerio is spot on IMO - He said...

"They don't know why they do it; the quants have simply programmed them to, so they just do it. Gold and Silver are only a very small part of what they do. Over all, their black box number based trading (chasing little dots on a screen) works great.

So JPM knows this and paints the charts so the black boxes switch to shorting gold. The black box doesn't care if its gold, silver or widgets. Then JPM transfers all their toxic shorts to the stupid bots."

It seems that JPM knows exactly how the HFT and quants work and how their programs are configured.  It seems that the Chinese New Year holiday wasn't factored into their algorithms so when JMP set up the decline (easy to do with only a small number of targeted sales at critical support levels when there is no eager Chinese buyer ready to snap it up), the black boxes simply piled onto each others selling frenzy and JPM just fed out their short positions to those automated programs at a controlled rate, effecively unloading the bulk of those toxic short positions and even getting long.

HFT and black box trading, by its nature is really unsupervised as the trades are placed in a split second data snapshot.   They can also be tricked into piling on each other just by a few well placed trigger trades.  Once someone gets a good handle on the way the program is set up and operates, then it can be defeated.

I suspect JPM and the commercials did this over the past few weeks and much as it goes against the grain to say it, they are now on our side (at least for a while).

benny_bomb_boom's picture

so you are saying 2 469 177.34 ounces of AU

have left the GLD in less than 2 months.  this ~ IMVFHO ~ is bullish.

great place to build a wine cellar.

DayStar's picture

Re: Harvey's Comments

Not every browser will work for Harvey's comments. I think IE 9 is the only Explorer browser that works for comments. Firefox and Oprah and Safari work I think.


hsofiak's picture

AM's Comments on KWM

How did the BIS arrange the smack down and convince the weak hands to supply the shorts?

Texas Sandman's picture

This knight reminds me of silver longs this past week

Dr Jerome's picture

LCS report

My coin dealer's display cases are getting bare--really bare. Mostly buyers, few sellers.

But he did make a deal to buy somebody's Morgans (50 coins) for US $1200, one of the coins has a CC mint mark. That's $24 each and he resells them for 35.   Actually, I think he is in a tough business. His income just pays for his living. 

He sold me four ounces for spot yesterday--Colombian Exposition half dollars  1892-93. These seem to go for $14-16 on Ebay.  I have picked up a few others and am tempted to sell them and convert to "junk" if I can get a premium.


tailspin's picture

Re: The Vet: Jasper's scenerio is spot on IMO - He said...

I really like this notion that there is some discernable human agency at play behind the artificial intelligence tools of algorithmic high frequency trading (HFT), turning the tool on its head and pointing it against the software entity's original creators who  have set it loose in the market to do its robot thing in the PM market -- even if it is JPM that is pulling the fast one against the HFT forces  Especially if JPM has gone long and is, as you suggest, at least temporarily on "our" side. If I read you right.

Texas Sandman's picture

Really good deal on those columbians

I'd hold onto them.  If you got em at spot, I'd consider that a steal.

gold slut's picture

Local Coin Shops

It strikes me that small fish (such as myself, and a few others out there) should support these folk as they have a wealth of expertise that protect us small people, and if things go wrong, they loose our trade.  Every buy I make is OKed by my LCS, and I can make any odd request which will be filled by their network of contacts.  I am a normal person who is  trying to build up a little PM backing (as many of you out there just like me) are trying to do, and the use of these local experts is invaluable to little people like us.  (My stack is teeny - but pure, and I am hoping to make it a bit bigger in the next few weeks (insh Allah) (sark off), but I think that these folk really need to be looked after.  If they go, we will be at the will of the big fish, and my LCS is far more kindly than those gits,  In this time of uncertainty, give me my LCS.  I pay their wages, they won't F**K me over.

delacroix's picture

So-Cal lcs today, didn't have

So-Cal lcs today, didn't have any new generic rounds left, and only 25 assorted used coins. as an example of the scarcity, among the 5  I bought was a 2008 santa round. the display cases, with pandas, and proof ase's, are showing a lot more empty space. the guy working today, said someone came in and bought all the best stuff in one transaction, yesterday.  no maples for over 2 weeks. still spot + $1.50     does anyone know what libertads go for in mexico? I heard azteca bank sells them for spot.

ltcolkilgore's picture

Dr J

Ebay and Paypal fees will eat your profit... better just to keep IMHO

Nice find yes

Ircsum's picture

The past few weeks

Given the price action in the PMs over the past couple of weeks I thought it useful to look back to a post I made here on Jan 27, with charts of gold & silver showing their downtrending channels. My comment then was

"I'm as bullish for the long term as anybody here but, short term, we may have some pain in store. I'd hold off buying for a week or two....jeez, I have to as I've no spare fiat."

One Turdite took obvious exception to my view, saying

"your viewpoint is absolutely at odds with reality here."   &

"There is nothing bearish in any way about the technical picture here." took more than a week or two, waiting for the PMs to approach the bottom of their channels. They got there on Thursday so I made a purchase. Didn't get the very bottom, but close enough. The exercise was somewhat spoiled by the British Pound making like a Yen in a headlong dive towards oblivion but there was sweet f.a. I could do about that.

I read all points of view & love Turd's (& others') charts & analyses but, in the end, I rely on my own judgement to make important decisions....after all, I'm the guy who has to live with the outcome.

The moral of the story?
If you're confident in your analysis don't be deflected by others. I have a nice Oz marsupial bounding my way as I type, somewhat less expensive that he would have been a few short weeks ago.


SilverSurfers's picture

Shoot the dog!!!!

I suspect whoever is committing these attacks is not happy with people getting real news and analysis
Greg, I was watching your video with Sprout, and was posting a messages, typical rebellion stuff, shoot a federal judge for brownie points, very very anti-totalitarian socialist fascists of our gov, and BANG you went down. Coincidence? sure
yeah sure, you bet …..


And sure enough, when I was posting, I was the first comment for sprout, with the anti-gov sutff, hit the post button, and bang, you go off line.

Mere coincidence? yeah sure, you bet.


Needless to say, the 1st comment for sprout, never got posted ….
mere coincidence? yeah sure …. My IPA should provide a time reference ….

oh yeah, THE CHINESE DID IT, to KWN and Watchdog.
mere coincidence? yeah sure … you bet


If the government will do WAR GAMES, marshal law in the good ole USA, why not be able to shut down, in one go, all the Pro-Bullion News outlet in one go? They were testing their shut down protocals, and seems to have worked very well.

I have long predicted US TANKS on wilshire blvd, before this fiat gamble is done. They can black out anything, except the official emergency news.

Dont worry, the gov has got your back ……


Groaner's picture

Sophie scholl , 22 years old but what courage against the Nazis

Read this and watch the interrogation video. She died for her stand This country is headed o the same place as the Nazi regime. There were 10,000 jw.s who would not support the nazis who went to the camps, many died with their integrity intact.

Nick Elway's picture

Kid Dynamite sez GLD is NOT used to settle Comex

the myth that if you have a COMEX Gold contract, the rules allow the short on the other side of the contract to deliver you GLD shares instead of physical gold.  That is false.  Factually erroneous.

My assertion (and GATA's similar assertion in 2009 was based on the CFTC interpretation of Exchange rule 104.36 from February 2005

As far as I can tell, rule 104.36 from 2005-2009 is no longer in the Exchange Rule book and there is a reasonable chance the Kid is right.

Until somebody comes forward that has been in an ETF settlement for gold or silver (or cash settlement as Harvey posits) I'll put the cash and ETF settlement belief on the back burner.

Somebody is draining GLD, perhaps it is just as Turd and AM described.

Texas Sandman's picture


I made money on both long & short side since your post.  You left a couple dollars on the long side you could have had by riding long in the short term & then flipping to short as I've done. 

My call was absolutely correct, as was my call when I went short in the $31 neighborhood (MACD had established a down trend at that point).  We MAY have bottomed right here, but there's no confirmation in my longer term model as yet.

I'm only trading short term now albeit with a bullish bias.

The Vet's picture

GLD is NOT used to settle Comex

GLD shares in appropriate parcels can always be redeemed for metal (at least to date) and that metal can be used for delivery. So what's the difference?  A couple of book entries and it's done!  Actual metal rarely moves and to move it takes weeks and a sheaf of paperwork.  The paper gold pushers don't make real delivery easy, cheap and convenient, but if you leave the phantom gold in their "care" you can get a paper receipt on the spot!

Adolf_Hitler's picture


If you read Chapter 5 Trading Qualifications and Practices, you can find the EFP- related rules. That's rule 538 Exchange for Related Positions. You can't assume big folks play according to the CME rules. Wash trades are forbidden on CME. That's rule 534. However, last year JPM was found doing wash trades on NYMEX (part of CME) and fined $30,000.

That was a slap on the wrist. You can bet the farm that there are more malpractices behind the scenes. Cash settlements or settlements with GLD shares are forbidden only according to those rules. BUT what really happens in the real world perhaps is another story.

El Gordo's picture

Shotgun shells

Went to the Wally World the other day to pick up some essentials and happened by the almost empty ammo display.  Saw several boxes of 12 and 20 ga dove load shotgun shells, and a few boxes of 20 ga slugs that looked like they would fit just right in my little junior sized Remington pump that I keep handy by my bedside, so I picked up a box.  Got them home, investigated them further, and decided that I might like to have a few more.  Went back the next day, and the ammo display was slick - not a single box of shells of any kind, so looks like I'll have to aim before I shoot so I don't waste any.  I do like the potential these things seem to offer, especially if any crazed deer happen to break into my house or something.

DayStar's picture

Harvey's Up!

GoldCore: the U.S. has off balance sheet debt or unfunded liabilities of between $70 trillion and $100 trillion.  The U.S. will never be able to pay these debts back and so it will attempt to inflate them away through currency devaluation.  Mervyn King:  "The establishment of a Sterling-Renminbi swap line will support UK domestic financial stability." The currency swap arrangement "cements London as the western hub for the fast-growing Renminbi market."  IAMGOLD’s high costs in 2012 heavily affected its earnings.  Chief Executive Officer Stephen Letwin did not expect the rise to be as steep as it was. "The magnitude of the cost increases did surprise everyone."  Ambrose Evans Pritchard: China’s investment is still running at 50pc of GDP, and its consumption is just 36pc, the most distorted economy in modern history.  Andrew Maguire:  COMEX is actually no more than a casino.  The leveraged pricing of gold at COMEX bears absolutely no relationship to the real, unleveraged supply/demand fundamentals.  Eastern central banks have used the recent smashdown in gold to acquire hundreds of tonnes and the smashdown is actually a "bubble short position" likely subject to a "violent" reversal.  Stephen Leeb:  Any PM selling that's going on here is just selling to the Chinese.  Certainly within the next 2 or 3 years China is going to be the largest gold holder in the world.  Jim Sinclair:  My birthday is March 27th. By that time this decline in gold will be old history. This decline is purely to take your positions away from you.  Gene Arensberg:  There were no fewer than four large metal reduction events for GLD since the summer of 2010.  In all four cases the large drops in metal holdings were immediately or soon followed by rising gold prices.

The Harvey Report!


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