Digging Deeper Into The Gold ETFs

85
Wed, Nov 6, 2013 - 9:59am

Much continues to be made about the historic "inventory" drawdowns of the GLD. It gets even more interesting when you compare the losses of the GLD to the "inventory" reductions of its two, biggest rivals.

As simple Google search of "largest gold ETFs" returns the following:

Symbol Name Price Change Assets * ▼ Avg Vol YTD
GLD SPDR Gold Trust $126.07 -0.58% $36,763,555 9,170,822 -22.13%
IAU iShares Gold Trust $12.68 -0.55% $7,205,410 4,276,858 -22.11%
SGOL ETFS Physical Swiss Gold Shares $128.64 -0.49% $1,214,987 44,729 -22.14%

With this as a starting point, let's dig a little deeper.

As you can see, all three mirror the value and return of physical gold and all three are down a comparable percentage, year-to-date.

Much has been made here and in other places of the massive draining pillaging plundering withdrawals seen so far in 2013 from the GLD so let's start there.

The GLD has a list of Authorised Partcipants:

"As of the date of this prospectus (4/16/12), Barclays Capital Inc., Citigroup Global Markets Inc., Credit Suisse Securities (USA) LLC, Deutsche Bank Securities Inc., Goldman, Sachs & Co., Goldman Sachs Execution & Clearing, L.P., HSBC Securities (USA) Inc., J.P. Morgan Securities Inc., Merrill Lynch Professional Clearing Corp., Morgan Stanley & Co. Incorporated, Newedge USA LLC, RBC Capital Markets Corporation, Scotia Capital (USA) Inc., UBS Securities LLC Virtu Financial Capital Markets, LLC (f/k/a EWT, LLC) and Virtu Financial BD LLC are the only Authorized Participants."

The APs are eligible to create and redeem shares through the sponsor (World Gold Trust Services) or the trustee (BNY Mellon). The metal is stored with the custodian which, in this case, is HSBC.

The GLD allegedly began the year with 1,349.92 metric tonnes of gold in "inventory". As of last night, it holds just 866.32 metric tonnes of gold in "inventory". This drop of 483.60 metric tonnes YTD is 35.82% of the 1/1/13 total. That's a lot.

As you can see above, the IAU is about 1/5 the size of the GLD. Regardless, it's still a pretty big fund. Though it's down nearly an identical percentage YTD in terms of return, the "inventory" plundering numbers are what got my attention.

First of all, some background on the IAU. Here are it's Authorised Participants:

"As of the date of this prospectus (3/14/13), ABN AMRO Clearing Chicago LLC, Barclays Capital Inc., Citigroup Global Markets, Inc., Credit Suisse Securities (USA), LLC, Deutsche Bank Securities Inc., Goldman Sachs & Co., Goldman Sachs Execution & Clearing L.P., J.P. Morgan Securities LLC, Knight Clearing Services LLC, Merrill Lynch Professional Clearing Corp., Morgan Stanley & Co. LLC, Newedge Group USA, Scotia Capital (USA) Inc., UBS Securities LLC, Virtu Financial BD LLC and Virtu Financial Capital Markets LLC are the only Authorized Participants."

Hmmm. Many of those look familiar, don't they? The sponsor of this ETF is a subsidiary of Blackrock and, once again, the trustee is BNY Mellon. For this gem, the custodian is the other principal member of The Evil Empire (https://www.tfmetalsreport.com/glossary), none other than JPMorgan.

Now to the inventory numbers. We're repeatedly told that the GLD "inventory" is down nearly 36% YTD on "investor liquidations and reallocations". OK. But IF that's the case, wouldn't you expect the IAU to be down 36% in "inventory", too? I couldn't blame you if you did but you would be wrong.

The IAU began 2013 with 217.71 metric tonnes of gold in "inventory". As of last evening, it shows 171.54 metric tonnes. If we do the math, that comes out to a drop of just 21.22%. Well, isn't that interesting. However, by itself, that doesn't tell a full story. Let's now take a look at the next largest gold ETF, the SGOL.

You may not be familiar with SGOL (https://www.etfsecurities.com/institutional/us/en-us/products/product/etfs-physical-swiss-gold-shares-sgol-arca). It, too, is an ETF which holds physical gold and, by prospectus, it's not allowed to lease it or loan it out. Even though it comes in at just 1/5 the size of the IAU and 1/25 the size of the GLD, it's still the 3rd-largest gold ETF on the planet. The fund has many of the same Authorised Participants as the GLD and the IAU and they're listed below:

"As of the date of this prospectus(4/13/11), Credit Suisse Securities (USA) LLC, Deutsche Bank Securities Inc., EWT, LLC, Goldman, Sachs & Co., Goldman Sachs Execution & Clearing, L.P., HSBC Securities (USA) Inc., J.P. Morgan Securities Inc., Merrill Lynch Professional Clearing Corp., Morgan Stanley & Co. Incorporated, Newedge USA, LLC, Prudential Bache Securities, LLC, Scotia Capital (USA) Inc., UBS Securities LLC and Virtu Financial BD, LLC have each signed an Authorized Participant Agreement with the Trust and, upon the effectiveness of such agreement, may create and redeem Baskets as described above."

ETF Securities USA is the sponsor and, once again, the trustee is BNY Mellon. Additionally, our old friend JPMorgan is the custodian of this ETF, too.

As of 1/1/13, the SGOL held 36.455 metric tonnes of gold in "inventory". As of last evening, that number had fallen to 28.919 metric tonnes. This drop of 7.536 metric tonnes puts the YTD "inventory" numbers down 20.67%.

So, let me see if I've got this straight...

Two of the three largest gold ETFs show "inventory" drops YTD that are nearly identical. Prices are down about 22% and "gold in trust" is down about 21%. OK, sounds reasonable. But how do you explain this? The GLD, while also showing a -22% return for 2013, shows an "inventory" drop of almost twice as much, nearly 36%!

Looked at another way, if the GLD "inventory" was only down 21% YTD, it would still have about 1066 metric tonnes in trust. Instead, it has 866 metric tonnes. Where in the heck did the other 200 metric tonnes go??? I'd say that's a pretty good question and I look forward to reading your potential explanations in the comments of this thread.

TF

p.s. Not listed with the funds above is the Sprott Physical Gold Trust (PHYS). This is because, technically, it's not an ETF. However, it does have a sponsor/manager (Sprott Asset Management), a trustee (RBC Dexia Investor Services Trust) and a custodian (The Royal Canadian Mint). The PHYS does not have any Authorised Participants.

On 1/1/13, the PHYS showed 50.289 metric tonnes of gold in inventory. As of last evening, that level had fallen to 49.944 metric tonnes for a drop of 0.68%.

About the Author

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  85 Comments

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ThorusHappyNow
Nov 7, 2013 - 1:39pm

Then you ask - but what are the alternatives?

>>>Then he may point out that even if your story is solid you admit you don't know how long the guy with the side bet can keep selling. This guy is not an individual he has access to resources beyond imagination. So this seller may not run out in your lifetime.<<<

Fair question.

My response would be, when I'm looking at where to invest my money for the long term, what are my alternatives?

Stocks? The P/E of the S&P is high compared to it's history. The likelihood is that stocks are nearer a high, rather than still having a long way to run.

Treasury Bonds? Yields are in the vicinity of historic lows. The likelihood is that bond prices are nearer a high, rather than still having a long way to run.

Gold and silver? Gold is down about a third from it's ~$1,900 high, Silver is down about half from it's ~$49 high.

Given a choice of buying an investment at a historic high (like stocks or bonds), or at something that is well down from it's historic highs (like gold and silver) - I think my odds are better with gold and silver.

Best Regards,

Thorus

HappyNow
Nov 7, 2013 - 1:21pm

And your son may call you a

And your son may call you a conspiracy nut.

Then he may point out that even if your story is solid you admit you don't know how long the guy with the side bet can keep selling. This guy is not an individual he has access to resources beyond imagination. So this seller may not run out in your lifetime.

But if you're buying lunch chances are your son will let it drop

ThorusGent
Nov 7, 2013 - 1:13pm

Son, what you're saying is true, but it isn't accurate

>>>'Dad, there are many, many smart and rich people in the world. Some of them like pm's, some don't. Sure, BRICS are buying/importing tons of pm's but, someone who doesn't care to have it is selling it to them. Thus, put the buyers and sellers together, see what the going price of gold is and there you have it's current value. You've lost lots of value over the past couple of years and I'm worried for you, Dad'

Asking for help in replying to my son .. who's damn smart!!<<<

Son,

What you say is true, but it isn't accurate. Yes, if you put the buyers and sellers together in a free and fair market, you'll find out what the going price of gold is, and it's current value. Quite true.

But that isn't what the market in gold is like. Rather, envision a big room with a bunch of computer screens, and if you want to buy or sell gold you go sit in front of the screen. Now, if the technology was just making it easier for the folks who want to buy and sell to get in touch with each other, that would be fine. Your description would still hold true.

But imagine if someone sits down at a computer, and they're not interested in making money by buying and selling gold there in the room. They are there not because they want to buy and sell to make a profit. They are there because they have a side bet, outside the room, worth billions of dollars, that says the price of gold will go down. Once they're in the room, they just keep selling gold, driving the price down. And even though they're losing money in the room, they're making a ton of money outside of it -because their outside bet is worth far more than the amount of real gold being bought and sold in the room.

So yes, son, I've lost a significant amount of money in the last couple years - because there have been folks who have made big money on side bets away from the actual buying and selling of physical gold.

But here's how things play out in the long run for the guy with the side bet. Eventually, he runs out of real, physical gold, and he can no longer influence the price people see inside the room. And when he does, all of the sudden, **everyone** in the room knows that the prices they've seen for gold for the last few years have been bogus. And then . . . the free and fair market you've described suddenly comes back with a vengeance. The price skyrockets as they realize however many tons of gold that have been sold per week for the last few years is now only going to be a small fraction of that.

I don't know if the guy with the side bet is going to run out of real, physical gold in the next year or two, or five, or ten. But I do know that he can't keep it up forever.

I don't need the money I've invested in gold to pay our day-to-day bills. I can afford to wait, years if necessary, for the guy with the side bet to run out of gold.

So don't worry about me son, I'll be fine. And we'll all be fine.

:::put your hand on his shoulder reassuringly:::

So, you want go get some pizza or a burger?

-----------------

Regards,

Thorus

DayStarBollocks
Nov 7, 2013 - 10:41am

RE: Polonium Poisoning

Bollocks, polonium is a rare and highly radioactive element with no stable isotopes. Polonium is chemically similar to bismuth and tellurium, and it occurs in uranium ores. 210Po (half-life 138.376 days) is the most widely available. 209Po (half-life 103 years) and 208Po (half-life 2.9 years) can be made through the alpha, proton, or deuteron bombardment of lead or bismuth in a cyclotron. If you infect a human target with this stuff, it causes fast acting and fatal cancer. Since it has such a short half-life, it is impossible to be poisoned with it naturally, because it is almost non-existent in anything a person would come in contact with. The only way it would ever show up is if it was administered as a poison. The news reports always want to use waffle words when the facts have not been established in court, but in the case of polonium showing up in the corpse, it is clear Arafat was murdered. Like they say, Arafat had a lot of enemies, but only someone with access to very high technology could have poisoned Arafat with polonium.

DayStar

HappyNow
Nov 7, 2013 - 9:07am

@Gent

Gent there are a lot of people on this site who claim that there are not the stockpiles of gold that the large depositories say are in the vault.

That screws with the supply/demand argument. If the vaults are really full then there is plenty of supply. If they are misleading the public then there isn't plenty.

That is a large part of the argument for holding gold and is what Bugzy is talking about above.

One of the very very good reasons to lie about how much gold is in the vault is that gold can be loaned out at many times the face value (fractional lending).

There are other theories about price fixing and artificial price suppression.

You will have to decide whether or not to believe all this.

** Good Luck **

PS I for one do not believe there is a 'shortage' of silver. I think there is enough to meet demand. Should demand spike up I believe there would be a shortage for 6-12 months until more supply came.

Hammer
Nov 7, 2013 - 5:12am

Magpie, for god's sake the

Magpie, for god's sake the only "expert" mentioned in the article you link to (they do not mention any of the other supposed experts by name other than by a vague "experts and environmentalists" and "a foreign nuclear expert"), is Charles Perrow a "professor emeritus" in SOCIOLOGY !!!!

For god's sake, check sources please before posting this crap.

https://en.wikipedia.org/wiki/Charles_Perrow

Hammer
Nov 7, 2013 - 4:04am
Occasnltrvlr
Nov 7, 2013 - 12:57am

@Hunt brother, RE: IRA LLC

I used https://www.passportira.com/

It was a little pricey, but they made everything very, very easy, and were quickly responsive to my questions and concerns. They write the Operating Agreement, set up the LLC, and make arrangements with the custodian, hand-holding one through the process. I could not have done it on my own.

Most custodians don't like the structure and won't take them. The custodian is IRAServices: https://www.iraservices.com/

I don't understand what texpat meant about not being able to take delivery. So long as the owner does not receive personal benefit, the manager can do whatever they want, so long as they refrain from any prohibited transactions. I'm pretty sure that wearing a piece of gold jewelry would cross the line, but keeping a Krug at the bottom of a potted plant would not.

THERE IS A RECENT WRINKLE TO THIS. I have read that the IRS may or may not issue the all-important tax id number for an LLC that is set up this way. This was not a rule change or law change, but a "policy" change.

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Dyna mo hum
Nov 6, 2013 - 11:51pm
DayStar
Nov 6, 2013 - 10:50pm

Harvey's Up! (TFMR)

  • Harvey: GOFO is all positive today. GLD: Gold gained 2.1 tonnes and stands at 868.42. Maybe we have exhausted the physical supplies!! SLV: Silver was unchanged at 10,497.75 tonnes. DS: It looks like TPTB are controlling more and more of the data in an effort to lull people to sleep.
  • Mark O'Byrne: Gold sales from Australia’s Perth Mint, which refines most of the gold bullion from the world’s second largest producer, rose in October as a drop in prices to a three month low led to increased demand and the mint filled a backlog of orders. Sales of coins and minted Perth Mint gold bars climbed 13% to 77,255 ounces last month from 68,488 ounces in September. The U.S. Mint sold 755,500 ounces of American Eagle coins as of November 1st, compared with 753,000 ounces in all of 2012.
  • Bill Holter: how much Gold or at what price would be necessary under a scenario like this. Let's take a look at this first from the viewpoint of the Chinese? An increase in Gold value with a markup of 900% would do the trick. Let's round it off and say that an $11,000 per ounce Gold price would just about cover a 50% markdown of their Dollar holdings. From the standpoint of the U.S., to mark Gold up high enough to cover all of the funded and "on the books" debt ($17 trillion), we arrive at a figure just over $60,000 per ounce.
  • Mike Maloney: In his book, the "Hidden Secrets Of Money", Mike gives ten reasons to own gold and silver. Number three is, Gold is probably going to rise in purchasing power by 20 times. DS: Silver will be probably 60 X 20.
  • Ambrose Evans-Pritchard: The European Commission has warned Germany it could face disciplinary action for running excess trade surpluses at the expense of EU partners. DS: This is real smart: bite the hand that feeds you.
  • Zero Hedge: Just as the European 'markets' have entirely disconnected from fundamental reality, Japan's bond market - the largest in the world - is dead.
  • Ron Rosen: Gold is holding on to an extremely critical rising trendline. It also has already broken above a key resistance trendline and is now consolidating. I promise you the “Big Money” is very familiar with these charts, and they are accumulating all of the physical gold they can into the recent weakness.
  • James Turk: As long-term interest rates climb, the market value of Fed Treasury paper declines. On a straight accounting basis, the Federal Reserve’s net worth is already wiped out because it’s leveraged at 55 times its net worth.
  • Michael Snyder: I have noticed a tremendous amount of apathy among the prepper community. A lot of preppers were doing really well for a while, but now a lot of them have apparently decided that we are no longer in imminent danger of an economic collapse and that instead of preparing it is time to party. This is a critical mistake. We should be thankful that this stock market bubble has given us a few more months to prepare. Sadly, so many people out there are wasting this precious opportunity.
  • John Rubino: Indian silver imports are on pace to hit a record high this year as the wedding and festival season drives up buying of the precious metal instead of the traditional gold, made scarcer and dearer by official measures aimed at cutting the trade gap.

All this and more on...

The Harvey Report!

https://www.tfmetalsreport.com/comment/609040#comment-609040

DayStar

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