LAWRIE WILLIAMS: Huge post-holiday increase in GLD gold holdings key gold price driver

While global gold ETFS have added over 500 tonnes so far this year, the daddy of them all – the SPDR Gold Shares ETF (GLD) alone has accumulated well over half of this, adding over 340 tonnes of gold year to date. And yesterday it reported an enormous increase in its holdings of 28.8 tonnes in a single reporting day – which is probably the largest single reporting day increase in its 11 year 8 month history!  The announcement of this increase saw a good boost in the gold price from around the $1,356 level to over $1,370 overnight – a level which it has been clinging on to today.  The scene was set by the Shanghai Gold Exchange benchmark prices which were set just below the $1,370 mark at the equivalent of $1,369.49 in the morning and marginally higher at $1,369.80 in the afternoon.

The corresponding gold price rise following the GLD figure’s latest announcement is certainly no coincidence.  One may recall that the massive 720 tonne fall in GLD gold holdings through 2013, 14 and 15, was seen as perhaps the key factor in the big decline in the gold price over the same period.  Thus it is no surprise to those who held this point of view that the big gains we have seen in the GLD gold holdings so far this year have also been a key driver in the gold price performance year to date.  If we see further big GLD investor interest in the coming days and weeks it would not be at all surprising to see gold breaking through upwards resistance and achieving the $1,400 level and upwards over the rest of the northern summer.

Of course there have been other events which have led to the increases in GLD – most notably recently the British voters’ majority decision to recommend withdrawal from the EU in the referendum of now nearly two weeks’ ago.  Britain has not yet triggered the EU’s Article 50 separation notice which is effectively the point of no return.  The referendum result is technically not binding and the big majority of members of parliament were actually in the Remain camp, but whether any politician, or group of politicians, has the courage, or arrogance, to ignore the referendum result and maintain the status quo is looking unlikely at the moment.  But in politics anything can happen.

But the Brexit referendum result has thrown not just the British, but also the European and global, economic picture into some disarray and this is also having an almost inevitable effect on the gold price which tends to do well in times of economic uncertainty.  Bank stocks in particular have been hit hard and the markets recall too well that it was the collapse of an important bank – Lehmann Brothers – which was the principal trigger of the 2008 global stock market meltdown.  Germany’s big Deutsche Bank is often quoted as being perhaps currently the most vulnerable major bank, and if that were to collapse – not that the German government would allow it to do so – the result would be cataclysmic.  So it’s hardly surprising that gold is seeing safe haven flows, an important part of which is showing up in the ETFs.

06 Jul 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