Unencumbered GoLD

Thu, Apr 11, 2013 - 10:26am

After yesterday's nearly 17 metric ton withdrawal, it is becoming increasingly clear that a global movement is afoot to hoard massive amounts physical gold. Today, let's try to put all of this into perspective.

As you know, we've been actively chronicling the "investor liquidations" of the GLD. Of course, that's the popular SPIN. Supposedly, investors worldwide are reallocating assets out of precious metals and into equities.

On 1/2/13, the GLD allegedly held in "inventory" 1,349.92 metric tonnes of gold. By the end of January, that figure had fallen to 1328.09. By 2/28/13, the reported "inventory" was less than 1,270 metric tonnes and by late March it had fallen to 1,222 metric tonnes. And now, in April, we're rolling. Down over 35 metric tonnes month-to-date.

Yesterday alone, the GLD reported a total withdrawal of 16.84 metric tonnes of gold. This brings the total "gold" in "inventory" down to 1,183.53 metric tonnes. Year-to-date, the GLD "inventory" has been depleted by 12.33%. Stated another way, for every eight bars there used to be in "inventory", there are now seven.

Now, let's try to put this into perspective. Yesterday's withdrawal of 16.84 metric tonnes is 541,418 troy ounces. A London Good Delivery Bar is 400 troy ounces, so yesterday's withdrawal represented roughly 1,353 bars. The image below is of a pallet holding 192 gold bars.

The total withdrawal of 1,353 bars would look like this:

As Ruprecht would say: "That's a lot." But we're just getting started! As stated above, GLD has shed about 35 metric tonnes just this month. That's seven more pallets!

Now we're getting somewhere. According to the World Gold Council, 35 metric tonnes (those 14 pallets of gold) is about how much is owned by the Ukraine or Malaysia. And the GLD spits out that much in just eight business days due to "investor liquidation".

But let's not stop there. The cumulative withdrawal YTD is 166.39 metric tonnes. That's 5,349,562 troy ounces! On the pallets above, I've only shown you about 35 metric tonnes. For the total GLD withdrawals YTD, we have to add another 56 pallets or 10,686 bars or 4,274,362 ounces!

And again, we are told that this is all due to "investor liquidations". Let's stop there for a moment. Call me crazy but wouldn't you think that an "investor" who is "reducing his/her investment allocation in precious metals" would also be dumping silver? I mean, silver's a precious metal, too, isn't it? Hmmm.

Well, let's look at GLD's little brother, the SLV. On 1/2/13, the SLV reported an "inventory" of 10,084.96 metric tonnes of silver. As of last night, the SLV showed an "inventory" of 10,497.59 metric tonnes of silver, UP 412.63 metric tonnes YTD or almost 4%. WHAT?? Wait a second. That can't be right. My math must be wrong. GLD has shed 166 metric tonnes of gold YTD...more than the entire holdings of Thailand or Singapore...but, over the same time period, the "inventory" of the SLV has grown?? YEP!

Now, you're probably thinking: "I remember something earlier this year about a massive, one-day addition to the SLV". Yes, you do recall that. Here's a link: https://www.zerohedge.com/news/2013-01-17/slv-etf-adds-record-572-tons-silver-one-day-more-all-2012 Of course, 10,000,000 ounces or about 311 metric tonnes of silver were almost immediately withdrawn and shipped off to JPM's new vault: https://silverdoctors.com/18-3-m-oz-slv-deposit-jpms-new-silver-vault-jpm-discovers-way-to-bypass-comex-re-entry-process/ And we also saw a huge, 5,800,000 ounce (180 metric ton) withdrawal back on Friday. Even taking all of these shenanigans into account, the SLV "inventory" is still up YTD. So, again, I ask the question: If investors are liquidating the GLD due to asset reallocation, why aren't they liquidating the SLV, too?

Could it be that maybe, just maybe, the drop in GLD "inventory" isn't related to "investor liquidations" after all? Maybe, just maybe, were are instead seeing a conversion of paper shares into physical metal for delivery? Of course maybe, just maybe, even these withdrawals are just book-entry, unallocated "credits". Read this from page 18 of the GLD prospectus:

"Prior to initiating any creation or redemption order, an Authorized Participant must have entered into an agreement with the Custodian to establish an Authorized Participant Unallocated Account in London, or a Participant Unallocated Bullion Account Agreement. Authorized Participant Unallocated Accounts may only be used for transactions with the Trust. An unallocated account is an account with a bullion dealer, which may also be a bank, to which a fine weight amount of gold is credited. Transfers to or from an unallocated account are made by crediting or debiting the number of ounces of gold being deposited or withdrawn. The account holder is entitled to direct the bullion dealer to deliver an amount of physical gold equal to the amount of gold standing to the credit of the account holder. Gold held in an unallocated account is not segregated from the Custodian’s assets. The account holder therefore has no ownership interest in any specific bars of gold that the bullion dealer holds or owns. The account holder is an unsecured creditor of the bullion dealer, and credits to an unallocated account are at risk of the bullion dealer’s insolvency, in which event it may not be possible for a liquidator to identify any gold held in an unallocated account as belonging to the account holder rather than to the bullion dealer."

If you ever want to read the entire thing, here's a link: https://www.spdrgoldshares.com/media/GLD/file/SPDRGoldTrustProspectus2012.pdf

Anyway, let's return to this "disappearing gold" idea. Did you see this story earlier this week? https://bullmarketthinking.com/comex-gold-inventories-collapse-by-largest-amount-on-record/ Year-to-date, the amount gold held on deposit for Comex delivery has declined by nearly 2,000,000 ounces. This sounds about right as The Comex delivered over 1,000 contracts in January, about 14,000 contracts stood for delivery in February and another 1,400 or so in the non-delivery month of March. So, how about some more pallets? Two million ounces is 5,000 bars. Once again, our pallets hold 192 bars so we need another 26 of them to represent the total Comex withdrawals for the first quarter alone.

And let's not forget the gold that is flowing out of London and Shanghai each day. Our man on the ground in London is Andrew Maguire. He's been trading and acquiring gold for over 30 years so, through his network of contacts, he's able to accurately estimate/measure the daily amounts of physical gold being allocated and delivered. Of course, the daily movements vary based upon price, discount to futures and day of the week. However, I asked Andy for an "average". What does he see play out on an "average day"? The numbers he provided are: 10-12 metric tonnes per day in London and 12-15 metric tonnes per day in Shanghai. Uh-oh. That's another 26 pallets and that's only for "an average day". And we're not even including Dubai or any of the other global centers!

You know, I could probably keep going and continue to copy-and-paste that stack all day long. (I bought the picture through Dreamstime so I can print it as many times as I'd like.) I think you get the point of this exercise, though. MASSIVE AMOUNTS OF PHYSICAL GOLD ARE MOVING AROUND THE PLANET, MORE SO THAN EVER BEFORE, AND CURRENT GLOBAL STOCKPILES ARE BEING DRAINED.

You're being told that the GLD is shedding gold and returning it to the Authorized Participants because "investors are re-allocating their portfolios away from precious metals". I'm sure some folks are so that's at least partially-true. But how do you explain away the fact that the SLV "inventory" is not down YTD? And where do you suppose all of that Comex gold went? And who/what is buying and taking delivery of, "on average", 20-25 metric tonnes per day through the world's physical delivery centers? And do you now think that gold at $1570 is expensive or inexpensive? Do you believe the "analysts" and "experts" who claim that gold is headed to $1300? Or $1100?? Or $800??? Are you going to side with The Sheep and The Paper Bugs and convert your metal back into fiat currency? Or are you going to side with whomever is accumulating all of this gold on a daily basis?

Additionally, do you trust yourself, your brain and your instincts? Do you wonder where all of is this gold is going? Are you curious as to why this is happening? Everyone from the financial media down to your friends and neighbors may not care. But you should. You most definitely should! And you should buy this dip. You should have bought the last dip. And you should buy the next dip. And every dip. And take delivery. While you still can and while there's still time.


About the Author

tfmetalsreport [at] gmail [dot] com ()

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