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

ancientmoney
Nov 6, 2013 - 12:26pm

Open letter to Chilton . . .

https://www.silverdoctors.com/open-letter-to-bart-chilton/

A commenter on this thread said Diamon (sp) was also jumping ship?? I hadn't heard that anywhere else yet . . .

ancientmoney
Nov 6, 2013 - 12:51pm

Reading between the lines . . .

It is important to read everything PM/financial with a critical eye:

"Gold has a special place in Indian culture, bought as a hedge against inflation and traditionally used for gifts at weddings and festivals. Silver does not enjoy the same status.

The value of silver imports in 2012 was $1.8 billion, whereas gold imports cost $52 billion. Even record shipments of silver are therefore unlikely to put any strain on the trade deficit, in contrast to the impact of gold, which is India’s second-biggest import item after oil."

https://dollarcollapse.com/silver/thats-a-lot-of-silver/

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

Silver does not enjoy the same status????

Let's see, the GSR today, based on current PM prices, is around 60. Yet, the ratio of importing silver:gold in India is 29:1. This means that India values silver at twice the ratio it "should."

Another deceptive story that sneakily attempts to denigrate silver, but if one is smart, you realize that silver is a much better value than gold at current prices.

SteveWzman
Nov 6, 2013 - 12:55pm

@zman: Sprott

How does he explain the fact that he has made no offerings for new shares?

Simple, the shares currently trade about 2% over NAV and need to be somewhat greater to allow an additional offering according to the prospectus. The offering costs need to be paid out of this premium so that the holdings of the existing shares are not diluted.

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.

You do understand this is a closed end fund whose holdings are only increased by discontinuous steps of secondary offerings?

Clarkii Stomias
Nov 6, 2013 - 1:06pm

Mainstream Reports on Chinese Yuan

2 Links from Drudge:

https://www.france24.com/en/20131106-china-seeks-world-role-peoples-money

https://www.vancouversun.com/Business/asia-pacific/China+yuan+makes+waves+international+currency/9123015/story.html

...

"HSBC’s Huo said their presentations in smaller developing countries such as Turkey and Poland were met with similar interest to those in global financial centers, drawing thousands of corporate treasurers, lawyers, government officials and trade groups.

“It’s very broad interest,” Huo said. “The yuan business is linked so closely with the China story. You have to get there early.”

The People’s Bank of China now has currency-swap lines with more than 20 overseas counterparts, encouraging greater overseas use of the yuan for trade and finance."

...

Petro dollar epitaph? Oh and file this under the MSM's uncanny ability to pick up "breaking" stories years after they've already become apparent.

boomer sooner
Nov 6, 2013 - 1:25pm

Wonder what it would take to

Wonder what it would take to get an official accounting, pics and bar list of the 50 tonnes of Gold sent to Germany this year? Or were the shipments to start in 2014? I bet no one will ever know whether the Gold was shipped or not. Would be nice to see some of Turd's pallets for real.

HappyNow
Nov 6, 2013 - 1:53pm

I guess we'd have to look at when the GLD was growing like mad

If I want to issue shares I have to put gold on deposit with GLD.

So if I put the gold in at....pick a number....$1600.

I then issue the shares at $1600 and they trade. I am the ultimate counterparty. If nobody wants the shares I take them back. Or I can just stop selling and only buy I suppose.

Now as gold falls in price I buy them back. At $1500, at $1400, and even at $1300.

I've made $100/oz on the first, $200/oz on the second and a whopping $300/oz on the last.

Now I have all my shares again so I redeem my basket and take back my gold.

This only works if I am thinking like a short in the beginning.

Now I have my gold back and can either sit on it like a long or sell to a buyer like China. I've made a ton of money in the process.

So when was the GLD putting on weight? And who was issuing shares then?

It's worth noting that the entity pillaging gold now has to be the entity that was putting the gold in play to begin with. That is, I can only redeem my own basket, not somebody else's. (feel free to correct me if I'm wrong about that)

The Doc
Nov 6, 2013 - 1:59pm

Precious Metals and the Lost

Precious Metals and the Lost Generation

While hyperinflation or a currency crisis can take months to develop, it will ultimately catch most by surprise. Of course, those who are prepared will not be welcomed.
Hoarders will be blamed. Metals could be banned and/or taxed and, eventually, re-priced far from the futures exchanges.
The return of precious metals to monetary status will not be welcomed by those who stand to lose the most.

https://www.silverdoctors.com/precious-metals-and-the-lost-generation/

zman
Nov 6, 2013 - 2:08pm

@SteveW

Shares of PSLV, "need to be (NAV at a 2% premium) somewhat greater to allow an additional offering"

I find it very hard to believe that Sprott wouldn't do a $300 million offering if the demand was really there, I don't think he would let the NAV stop him, it makes no sense in the long term.

It's nothing more than an excuse, the demand for his investment products (PHSY and PSLV) is just not there. The NAV proves this, and the absence of any offerings also proves this fact.

His thesis of massive physical demand is not adding up, if his products are backed 100% by physical metal, where is the demand for his own investment products?

AlienEyes
Nov 6, 2013 - 2:14pm

Precious Metals and the Lost Generation

This is why the eventual legality of marijuana is a good thing. It will also make hemp ropes very affordable again. This could bring hanging / lynching back in style again.

Hunt brother
Nov 6, 2013 - 2:24pm

Physical Possession of Gold/Silver in IRA

Been away for a while....researching a legal structure for an IRA owner to take physical delivery of Gold Eagles and Silver Eagles while remaining inside the retirement plan.

The structure is the self-directed IRA LLC. IRA custodians that specialize in these accounts require specific documents. The key is the operation agreement of the LLC which must contain specific language to satisfy to custodian.

The IRA LLC became popular during the real estate boom, and since MF Global is being used to take physical delivery of bullion coins not prohibited by the IRS Code, Gold Eagles and Silver Eagles.

Has anyone established this IRA structure? My custodial choice has been made, and I need to hire an attorney or facilitator to create the LLC and draft documents per custodial requirement.

The first facilitator I spotted on the web provided useful information on the strategy, but when I contacted them they pitched Silver Eagle proofs at $75 per ounce. They would allow me to lock in the price before the plan was in place. Total loss of credibility. I am not paying $75 for an ounce of silver.

I have found about five facilitators of the IRA LLC who seem credible, seeking comments from the forum on this topic.

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