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LAWRIE WILLIAMS: Follow GLD for guide to ‘big money’ gold investment

Since mid-August some 69 tonnes of gold – worth around US$2.9 billion at the current gold price – has been deposited into the world’s biggest gold ETF – SPDR Gold Shares (GLD).  This kind of volume can only result from some very significant institutional purchases into the ETF.  GLD had previously seen liquidations of around 80 tonnes over the prior two month period so the latest purchases represent a huge turnaround in sentiment by the ‘big money’.  Thus the regular monitoring of the GLD total gold holding tends to provide an excellent indicator of institutional sentiment towards gold, which had been distinctly lacking in the 2-3 year period following gold’s peak spot price level achieved in Q3 2011.

In the late 2011 to end-2015 period the only thing which prevented gold falling back perhaps below $1,000 an ounce, as many were predicting, was huge Asian demand – notably from China – which was easily soaking up the almost 680 tonnes of gold liquidated out of GLD over that period – an amount added to by sales of gold out of other ETFs around the world.

2016 saw quite a turnaround in both the overall gold ETF holdings and the gold price itself – at least until the mid year when both turned down again until the year end.  Since then both the gold price and the ETF gold holdings have picked up again – apart from the rather anomalous fall in the GLD holding in June and July (although the level of falls over this period were not mirrored in other gold ETFs – not even in the second largest U.S. gold ETF – the iShares Gold Trust).

Asian demand had slipped too – notably in India in 2016 – which had perhaps contributed to the gold price not taking off over that period, but this year Indian demand has picked up in the first half of the year and could see another surge later in the year, while Chinese demand appears to be holding up pretty well.  If this is accompanied by a pick-up in gold ETF purchases, at a time when global new mined gold output appears to be beginning to fall at last – peak gold having been reached perhaps in late 2016 -  we could well be seeing a squeeze in physical gold availability, particularly if gold ETF investment continues to appreciate.  And the easiest way to monitor this is via GLD which publishes daily movements in gold investment into, or out of, the fund on its website – www.spdrgoldshares.com/usa/historical-data .

So our advice as a pointer to the likely direction of the gold price as represented by institutional gold investment sentiment is to keep a close eye on the overall trend of investment into, or out of, GLD.  At the moment it appears to be in a rising phase which is positive for the gold price – particularly given global geopolitical uncertainties which could trigger additional strong moves. – and as long as Asian demand holds up reasonably well.  Overall, longer term, as global wealth increases, particularly in the huge population nations of China and India, while global gold supply is either static or falling – albeit slowly – gold demand looks to be likely to increase while supply is slowly diminishing.  This is a classic rising price scenario over time which is why many observers are predicting ever-higher gold prices in the medium to long term.  We would concur with this viewpoint.

26 Sep 2017

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

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