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LAWRIE WILLIAMS: 16 tonne outflow from SPDR ETF hits gold but silver unfazed

Which came first – the chicken or the egg?  In this case did the past two days’ weaker gold prices prompt a 16 tonne outflow of gold from the SPDR Gold Shares ETF (GLD), or did the gold outflow, putting that amount of bullion back into the market, prompt the gold price fall?

Since the beginning of this year, GLD has added gold at a remarkable rate and up until a couple of days ago had brought around 340 tonnes back into its vaults.  Year to date there had been some occasional remarkable daily inflows – the largest of which at 28.8 tonnes came in over the U.S. July 4th holiday, and while there had been the occasional daily gold liquidation out of GLD, the amounts had been very small – until yesterday’s 16 tonne sale report.

What needs to be considered now is that is this just some heavy profit taking as the Brexit gold boost begins to fall out of the gold price equation, or does it signify a deeper change in sentiment which could leave to further big withdrawals and a further gold price decline?

So far we would suggest the former.  Although gold slipped sharply yesterday, before making something of a recovery, and again overnight, today’s trading has been choppy with so far prices coming back up to the $1,340 level.  But that has been ahead of the U.S. market opening and it is the U.S. market that has led the downwards trend over the past couple of days.

Interestingly though silver, which has been performing pretty well vis-a-vis gold since the beginning of July, has been holding up well, even showing a small rise when gold fell back, which suggests there remains an important degree of confidence still out there in precious metals overall.  This is exemplified by the Gold:Silver Ratio (GSR) which has fallen to below 66 at the time of writing – a fall of around 20% from its high point reached earlier in the year indicating that the silver price, in percentage terms, has risen by around this percentage against gold.  At the moment the GSR is still trending downwards, but it will probably need a resurgence in the gold price, and continuing support for silver, to continue on this path down to around the 60 level which is where it seems to be headed.  Could the silver tail start wagging the gold dog?

Should gold recover yet again and head for the $1,400 level as a number of analysts are now suggesting, then a falling GSR to 60 would suggest silver might be heading for the $23 level and up being a rise of getting on for 50% from where it was on January 1st.  This is not a specific prediction but an indicator of where the silver price might be headed should gold perform up to the more bullish analysts’ expectations.

As we have pointed out before, strength or weakness in the GLD stock position seems to have an almost immediate impact on the gold price.  The banks which set the gold price benchmarks in London and Shanghai will probably have something of an inside track on the immediate ETF holdings changes, likely ahead of the actual SPDR announcements, as they will be privy to gold flows in and out of their vaults, so forewarned is forearmed. 

For the general public, the daily announcements of sales or purchases out of, or into, GLD remain  perhaps the best guide of where the gold price may be headed ultra short term, so the next few days’ announcements could be seen as particularly relevant as to whether yesterday’s big outflow was something of a profit-taking anomaly, or ominously the start of a general trend of institutional selling with funds seeing weaker gold prices ahead.  Watch GLD closely.  It’s probably the best guide out there as to where gold is going now.

13 Jul 2016 | Categories: Gold, Silver

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