LAWRIE WILLIAMS: Enormous purchases into US gold ETFs go virtually unnoticed

Strange things are happening in the gold market.  We have seen some huge gold price gains over the first seven weeks of the year, while over the past weekend we saw a very strong reversal when the Western markets were closed.  Perhaps even stranger were the extremely large announced gold purchases into the two major U.S.-based gold ETFs – SPDR Gold Shares (GLD) and the much smaller iShares Gold Trust (IAU).  These were respectively enormous one-day increases of 19.332 tonnes and 4.00 tonnes.  Yet strangely the mainstream media – so quick to pick up on any big ETF liquidations – does not seem to have noticed, or perhaps considers such massive one-day increases as irrelevant!

As Julian Phillips writing today on www.lawrieongold.com and elsewhere noted: “Physical gold purchases are rising in volume into these two, U.S.-based gold ETFs as gold continues to consolidate in a pattern promising a strong move shortly.”  He further comments “We find it somewhat unbelievable that US investors should buy 23.332 tonnes of gold into their two main gold ETFs on Friday and then in Asia the price falls back $19.”  Something does not gel here.

We have also seen Russia continuing to boost its gold reserve position strongly with purchases of around 22 tonnes in January – See: Russia's January gold reserve increase much higher than previously reported -   which equates closely to all its national domestic gold output.  And this at a time of year where Russian central bank gold purchases have tended to be small, or non-existent, in the past. With China continuing to buy as well (another 16 tonnes reported in January) it looks like central bank gold purchases will remain strong this year (although Venezuela has been reported as offloading some of its gold to try and prop up its currently disastrous economy).  The next set of IMF global gold reserve figures will be interesting.

There is an assumption too that gold demand in Asia and the Middle East remains strong and if we add into that the Western purchases as seen in the gold ETFs and sky-high gold coin sales, coupled with declining available gold inventories, it is difficult to know where the supply will come from.  Scrap sales have been falling and the major precious metals consultancies are now of the opinion that global new mined gold production is starting to decline - at last.

While gold often confounds in terms of normal supply/demand economic parameters, as all this comes together and the potential shortfall of physical gold availability becomes more and more apparent, it is difficult to see how the futures markets can continue to prevent the price breaking out from its recent range.

22 Feb 2016

About the author

Lawrence Williams

Lawrence (Lawrie) Williams is a well known London-based writer and commentator on financial and political subjects, but specialising in precious metals news and commentary. He is a qualified and experienced mining engineer having graduated in mining engineering from The Royal School of Mines, a constituent college of Imperial College, London - recently described as the World’s No. 2 University (after MIT).

e: lawrie.williams@sharpspixley.com