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

twippers
Nov 6, 2013 - 10:02am

first

nice to be....

Nov 6, 2013 - 10:09am

If you've got two hours...

Here's a whole bunch of Jackass for you.

zman
Nov 6, 2013 - 10:19am

Sprott

How does he explain the fact that he has made no offerings for new shares? Where is the demand for his physically backed shares? If demand for physical silver is so strong (as he claims), why haven't investors poured money into the PSLV at some point, the final conclusion is the demand is still weak.

Nick Elway
Nov 6, 2013 - 10:20am

FOFOA not watching the pot

Quote:

Motley

Submitted by Turd Ferguson on November 6, 2013 - 6:47am. MODERATOR

Rather than fight and argue with people, perhaps you can comment on this excellent and interesting FOFOA post?

https://fofoa.blogspot.com/2013/11/advance-warning.html

Thanks Turd for the excellent link. No silly silver bashing in this FOFOA..

Mudsharkbytes
Nov 6, 2013 - 10:25am

Can it be?

Second??

And public to boot?

Wish I could help on the location of the missing 200 tons.

Spent some time yesterday listening to some yayhoo at a watch store with a prominent "we buy gold" sign telling me all the reasons why gold was going to keep dropping in price because the economy was improving and the smart money is moving elsewhere. This was after he showed me some of the days bagged up jewelry that he was paying 90% of spot for from the poor saps who, according to him are coming in multiple times a day and selling their gold.

When I asked him why he was buying gold if he thought it was going to keep dropping in price he started spluttering and then took a phone call. This was after he proclaimed the cost of fuel was also going to drop when I pointed out to him that energy costs are so high many mines are currently underwater and can't turn a profit at today's prices.

I realize he was just trying to scam me out of any gold I might have by scaring me into selling before the bottom falls out due to the *ahem*, impending economic recovery, but still! guys like this really piss me off.

Texas Sandman
Nov 6, 2013 - 10:28am

Where did the gold go?

Are you being rhetorical or pedantic here, Turd?

The obvious answer is CHINA.

The APs have another way to print money here. Redeem GLD shares for the physical stuff, and sell it at a premium in China. Lather, rinse repeat.

This doesn't even begin to take into account what they do painting the tape & manipulating to get those GLD shares at a discount in the first place.

Patrancus
Nov 6, 2013 - 10:42am

another Jackass said

what happened to the other 200 metric tons?

tyberious
Nov 6, 2013 - 10:45am

RE: If you've got two hours...

I've got 6 at my desk! Thanks

Texas Sandman
Nov 6, 2013 - 10:45am
tyberious
Nov 6, 2013 - 10:52am

Jay Taylor

Since JFK, Sinister Forces are Removing Liberty in America https://www.voiceamerica.com/episode/73875/since-jfk-sinister-forces-are... Current Episode Direct Audio Links: Hour 1 Hour 2 Jacob G. Hornberger visits for the first time while Ranting Andy Hoffman, Gene Epstein and Daniel McAdams return. As we approach the 50th anniversary of President Kennedy's murder, we will ask Jacob Hornberger, a former criminal lawyer, about his theories on who murdered Kennedy and why the CIA is covering it up. Why did the CIA never allow Nixon to see the JFK files? Is the President of the US the President, or not? Jacob has thought about the tragic Nov. 1963 event and written prolifically about it so we will seek his views. We will also seek Daniel McAdams to speculate about the significance of the JFK killing in terms of current geopolitical issues and as always, Andy Hoffman will have some issues to discuss regarding market manipulation and the effect that has had on our liberties as well as our economic well being. Economist Gene Epstein will talk about the upcoming Junto meeting and some of his recent libertarian economic views expressed in Barron's.

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