GLD Drain Accelerates Again

19
Tue, May 19, 2015 - 12:19pm

The GLD is once again being drained of "inventory" during a period of rising prices. Is this a sign of tight, global supply? Unfortunately, we can only speculate.

As we've diligently established over the past eight months, the paper price of gold is now largely controlled by daily changes to the dollar-yen. HFT trading algorithms now control nearly every "market" and, within paper gold, it appears that most HFTs are set to sell gold as the yen declines versus the dollar and buy gold as the yen appreciates.

Here's the past three years of correlation, with the yen in candles and gold in bars:

And here's just the past 12 months:

However, there's a period within that 12-month chart where the correlation clearly broke, roughly between 11/5/14 and 12/1/14. After that, the correlation resumed. I've added arrows to the chart so that you can see what I mean (click to enlarge):

And what was occurring then to break the correlation? Recall that over the exact same time period, the now-discontinued London GOFO rates moved into extreme and historic negativity. The snapshot below shows 1-month, 2-month, 3-month and 6-month GOFO rates between 11/4/14 and 12/5/15. Note several things:

  • The sharp acceleration of negative rates began on November 5
  • Negativity peaked on December 1 as even the 6-month rate was at an all-time, historic low of -0.12333%
  • All negativity then evaporated by December 5

Combining this chart analysis with the GOFO rates led me to the following conclusion:

The paper--physical connection nearly "broke" last November. The HFT trading programs that linked the gold price to the value of the falling yen had driven price uneconomically low and the result was a dramatic shortage of readily-deliverable gold in London. This yielded a price "floor" near 50 that still holds as support to this day, despite several attempts to crack price below there in the time since.

However, in January the LBMA conveniently (for them) decided to discontinue the publication of daily GOFO rates. Clearly this tool had become too useful for all of us who seek to peer into the deliberately-opaque London process. So, after years of daily updates, the LBMA decided to simply quit publishing the rates. So, how can we decipher whether or not tightness exists in the wholesale gold market without the GOFO rates? That's the puzzle...and maybe we have a partial answer.

The raiding and pillaging of the sham GLD for physical metal has been documented many times on this site. Here are just a few examples:

However, this pillaging doesn't just occur during periods of falling price, it occurs during periods of rising price, too. One such period was the algo-disconnect discussed above, between 11/5/14 and 12/1/14, when GOFO rates went historically negative.

Over that same time period, and while price was rising from a close of just $1147 on 11/5/14 to a close of $1219 on 12/1/14, the total stated "inventory" of the GLD fell by 21.19 metric tonnes from 738.82 mts to 717.63 mts. "Inventory" began to rebound in early December before falling once again and finishing 2014 at just 710.81 mts.

So, to summarize the GLD changes, as price rose $72 or 6.3% during that 4-week period in November of last year, the GLD shed 21.19 mts or roughly 2.9% of "inventory". Were the Authorized Participant (Bullion) Banks raiding the GLD in a desperate attempt to confiscate any available metal in order to meet global demand in a time of extreme physical tightness? Well, you could very easily come to that conclusion, couldn't you?

Again, though, how do we assess physical tightness going forward since the LBMA decided to stop letting us see the the GOFO rates? Can the GLD alone provide the answer? No, it can't. However, it may still be able to provide some clues. Let's take the current GLD "inventory" activity into consideration.

As the month of May began, the paper price of gold stood at $1174. Once again, this was very close to the "physical floor" we identified back in early November. Over the next two weeks, gold rose by 4.6%, closing at $1228 yesterday. Over this same time period, the GLD "inventory" has once again fallen sharply, from 741.75 mts on 5/1 to just 718.24 mts last evening....including a 5.67 metric ton puke-job just yesterday.

So, again and just like last November, price rose dramatically while the GLD "inventory" fell by 23.51 mts or 3.2%.

Hmmmmm. Did we just witness another physical demand-induced price squeeze? Again, it's impossible to confirm given that the LBMA no longer publishes GOFO. However, we'll continue to monitor the daily changes to the GLD "inventory", particularly if price begins to decline again toward that $1150-$1180 range. In the absence of free information from the LBMA, monitoring the GLD may be one of only public indicators left in measuring global gold supply stress.

TF

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  19 Comments

SS121
May 19, 2015 - 8:25pm
tyberious
May 20, 2015 - 12:52am

@SS121

Not to be fly in the ointment and I understand you skepticism but...

https://www.bullionstar.com/blogs/koos-jansen/china-continues-to-drain-g...

"Let’s go through the most recent customs data published by the largest suppliers to China mainland: the UK, Switzerland, Hong Kong, Australia and the US."

In total the UK net exported 173 tonnes in November, up 282 % m/m; the biggest outflow since July 2013. Net export to Switzerland also saw a huge spike in November, 118 tonnes, up 179 % m/m, the largest tonnage in 9 months.

The Swiss imported 1,597 fine tonnes in the first eleven months of 2014; export was 1,616 tonnes over this period.First the data: in November import was 219 tonnes, up 137 % m/m, a record for 2014; export was 232 tonnes, up 20 % m/m, a record for 2014 as well. Net outflow was 12.5 tonnes. In November Swiss gold export to China was 35 tonnes, down 18 % m/m. Switzerland net gold export January – November heading for China was 187 tonnes.

In the first eleven months of 2014 Hong Kong net exported 742 tonnes to mainland China – down 30 % y/y.

Australia

Australia is the second largest miner in the world, producing roughly 250 tonnes a year. Gold that is nearly all exported, as the ozzies themselves do not have an appetite for yellow metal comparable to Indians or Chinese.

Export data of the land of down under can be tracked through COMTRADE – that copies its data from the Australian Bureau Of Statistics. This data is deceiving though, as I’ve just found out. Australia discloses gold export to China, also when it’s shipped via Hong Kong. This results in double counting, as Hong Kong counts this gold as exported to China as well.

When I compared Australia’s export to China data from COMTRADE with Hong Kong’s import from Australia data from the Hong Kong Census And Statistics Department, I noticed they are nearly the same. This is an accounting inaccuracy by the Australian Bureau Of Statistics in my opinion.

Note: Do the research and you'll conclude as I have that China really does have Gold and the Western vaults are indeed empty. China has played the chess game well.

Bloomberg: London Gold Vaults Are Virtually Empty, All the Gold Has Been Transferred to Hong Kong!

https://www.silverdoctors.com/bloomberg-london-gold-vaults-are-virtually...

SS121
May 20, 2015 - 2:52am

Tyberious, please tell me more...

When you say "China", are you referring to the nation, the people, or the PBOC(Central Bank)??? do tell.

If you are referring to the People's Bank of China, do you believe that the PBOC is a Bank that is owned and operated by the People, Of China?? Or a Central Bank that is part of the privately owned Central Bank system? or something else? Please tell me exactly what you mean when you say "China".

And if we are to believe your unsubstantiated second hand reports from a Dutch guy who got laid up for a few weeks with a hurt leg and is now the unquestionable authority on all things related to "China", and "Gold". Is this "Gold" he refers to physical Gold? or is it Fiat Gold? Or is he just repeating what he is told and really has no idea, in your estimation?

Please don't cut and paste any articles for me to read. Please just tell me your thoughts on how this all works. Exactly.

Please explain the roles of all involved- Central Banks, Bullion Banks, the LBMA, Comex, media, and the owners of these entities. Please include what you believe their motivations to be and your estimations as to their trustworthiness regarding all things "Gold". And please explain whether or not you believe this "Gold" to be actual physical Gold or Fiat Gold, and your exact reasoning.

No links please, just your analysis.

you say...

Note: Do the research and you'll conclude as I have that China really does have Gold and the Western vaults are indeed empty. China has played the chess game well.

i say...

Any Bernie Madoff can print up (decree) some fiat gold reports. Studying these reports is not research, it's Kool-Aid drinking. Like waiving Al Gore's reports on Global Warming proves Global Warming

Global entities with agendas (esp involving Gold) don't usually publish information contrary to their agenda. So please do not include them or anyone else's in your analysis.

Additionally, would you please also give me your own personal explanation regarding two other pieces of this global fiat system that are puzzling...

  1. If there is no grand conspiracy by tptb at play here... how did every single nation on God's green Earth (exc iran nk and cuba) end up with a nearly identical privately owned Central Bank issuing them their nation's currency? and...
  2. How did it come to be that all the world's private physical silver and gold transactions ALL refer to the banker's privately owned fiat silver and gold charts to determine their transaction price?

I look forward to reading your analysis.

tyberious
May 20, 2015 - 9:27am

Well, if you have ever read

Well, if you have ever read GATA, whom research you can not deny, you would know that Western CB failed on Gold price suppression; London Gold Pool collapsed in 1968, where the Western CB's went from 25,000 tons to (cough, cough) 8,000 tons. Its historical!

I've never said that CB's franchise is a not global control mechanism. Countries were sold exponential growth, which required exponential currency, therefore fiat. That phase of human history is ending because you can not have exponential growth on a finite planet.

But back to your question. I'll ask you to prove a negative, how do you know that China doesn't have the Gold?

Your second question is easy.

Gold is so important that Western central banks — particularly the U.S. Treasury and its Exchange Stabilization Fund, the Federal Reserve, and allied central banks — rig the gold market every day, even hour by hour. Why do they do this?

It’s because gold is a powerful competitive currency that, if allowed to function in a free market, determines the value of other currencies and influences interest rates and the value of government bond.

Thanks for the engaging dialog.

SS121
May 20, 2015 - 1:55pm

Tiberious, not GATA

No, i want to your explanation. No links, no redirects to GATA, of all places. Good grief...

Gata has made a career out of being the stooge for the system's false-hope narratives. Crying that "the gold market is illegally manipulated, the gold market is illegally manipulated".

Nevermind that manipulation is perfectly legal!! ...and is there even an actual physical Gold market to legally manipulate?? Or just a fiat Gold Market.

Tell me about the PBOC specifically. That is who you claim has "All the Gold" right?

Is it Physical Gold or Fiat Gold?

How do all your import/export numbers arrive at the PBOC now holding all this physical Gold?? I thought the Chinese people were encouraged to acquire gold and that there's a gold shop on every corner. Why don't they have "All The Gold"??

So... the UK exports Gold... GATA talks about a price suppression scheme that ended (even tho prices are still suppressed) in the 1960's and "presto" that somehow equals the PBOC having a vault full of Gold??

Your data points don't connect. Your "that's what GATA said and they can't be questoined" reasoning tells a story that fits nothing we all observe on a daily basis.

And you never did address how you determined whether the "China" gold is physical or fiat.

It seems to me that you've been kept in a confused state by those who you have allowed to do your thinking for you. Now when questioned all you can do is copy and paste articles or try and grasp for memories of their tired, leaking, over-arching narratives. I'm not saying this is the case, just that it seems that way.

Please try again, your thoughts, your words. Or if that is not an option... maybe you now agree that the PBOC isn't a "CB gone rogue" and never really somehow obtained physical Gold from a Fiat Gold warehouse. (Maybe you will reference my posts as research and email them to GATA!? LOL... or maybe not )

do tell...

tyberious
May 20, 2015 - 2:39pm

@SS121

Now your being silly. I only have access to research performed by others! It is up to the reader to determine the accuracy of research and documentation. Providing evidence through research is the only way to methodically determine a conclusive, fact based decision. Peer review is the standard, not conjecture and emotion.

Your's is based on????

SS121
May 20, 2015 - 3:30pm

You only have access to research performed by others??

You only have access to research performed by others?? You do not have the ability to think for yourself?

So if GATA says 2+2=5 you say 2+2=5 ??

Peer review is your standard? Like the guys that show up at 3:30 in this video??

https://www.youtube.com/watch?v=EHAuGA7gqFU (h/t to Dr. J)

Their research says 2+2=5 with the 'peer review' to boot.

There are nothing but holes in the story that "All the Physical Gold went to the PBOC". It doesn't add up. But you ignore every point i made and say that the PBOC is loaded with Physical Gold because of GATA's research. Which even of itself doesn't add up to Physical Gold in a PBOC vault.

The rest of the class says "All the Gold went to China", so you repeat it. ...since all you have access to is the "research" performed by others. Ok, got it. But even according to that belief system...

By "China" (according to your "All the Gold went to China" belief) do you mean the PBOC?? (yes or no) and

Is the "Gold" real physical Gold, or Fiat Gold? Phyzz or Fiat?

By "China" do you mean the PBOC?

tyberious
May 20, 2015 - 4:02pm

I wont

contest, that we truly do not know if the Gold is with the PBOC. But, here is what is important, all the EVIDENCE (something you do not provide) points to Chinese Government having imported at least 10k tons of Gold. That my friend is what the EVIDENCE says, regardless of what you assume. Sorry to bust your bubble.

Are you dense or just stuck on a flawed thesis? I provided evidence from import data, mining data, customs data, and refinery data. I'm a huge conspiracy theorist but when EVIDENCE points in a different direction I revise my hypotheses or opinion. If you don't trust the data provide EVIDENCE to the contrary, otherwise let it speak for itself.

The EVIDENCE could be wrong if, all of the Gold exporting countries, the mining companies, the refiner companies, the transport companies, shipping companies along with everyone else in the supply line decided that hey, "we need to falsify our data so that it looks like China has all the Gold, because one day they will have the WRC."

As you can see that's a ridiculous assumption and an impossible one, for two reason.

1) Gold flow is measurable

2) China will not be a the WRC, outside of SDR addition.

In any event when people are so faithful to a belief it is impossible to challenge that belief so, this will be my last reply on this topic.

SS121
May 20, 2015 - 4:49pm

Chinese Gov, or PBOC? Phyzz or Fiat? (yes, i'm dense!)

I did provide evidence to the contrary. Primarily that none of anybody's evidence leads to a PBOC Gold Vault with actual Physical Gold. If that is even your theory. Is it?

you just said Chinese "Gov". Is that who you believe has All the Gold? Or the PBOC? or does your theory not distinguish between the two?

Maybe I am dense! :-) That's why i'm asking. Again.

gov or pboc?

phyzz or fiat?

what say ye...?

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