Tim Iacono – Tue 25 Mar, 2014

Another Curious (And Pretty Bullish) Inflow For The Gold ETF

This is the latest post by our friend Tim Iacono. Here is Tim’s summary of the post:

  • A surprising 4.5 tonnes was added to the GLD trust yesterday as prices tumbled.
  • This behavior is very uncharacteristic of U.S. investors who, last year, sold when prices fell.
  • This could signal a major change in how U.S. investors think about gold as an investment.

I have long said we need western investors to take a more possessive stance when it come to investing in gold and the ETF flows are a major player. Although the inflows are not major, any inflows are a big deal compared to the mass outflows we saw over the past couple years.

Click here to read Tim’s comments.


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Comments:
  1. On March 25, 2014 at 8:38 am,
    Steven says:

    If I had a few questions for Tim it would be have you personally seen any of the 4.5 tonnes of gold added to GLD or are you taking someones word in text or verbally for it? If you have not seen the gold is it not fair to say that GLD’s holdings could be a book keeping fiction?

    • On March 25, 2014 at 8:45 am,
      The" OWL COINLAND" REPORT.......O^OTB...WOOT says:

      maybe, a paper promise , from Goldman………IOU……….nothing can be trusted at this time………….

      • On March 25, 2014 at 11:23 am,
        Big Al says:

        Gotta agree with both you and Steven, Owl

  2. On March 25, 2014 at 8:43 am,
    b says:

    Mr Iacono is not the only person saying this.
    This story was being told yesterday I think.

  3. On March 25, 2014 at 8:43 am,
    The" OWL COINLAND" REPORT.......O^OTB...WOOT says:

    Is it really? A surprise, or big deal?…….

  4. On March 25, 2014 at 8:48 am,
    CFS says:

    As I posted yesterday 4.5 tonnes were added yesterday, 4.15 tonnes were added Friday.
    Was it physical probably not much of it. GLD is made up of paper gold and physical.
    As for sales of gold over the last year, they were mostly composed of big banks buying GLD and then cashing out physical to ship the real metal to China.
    I do know at one point last year there was not much actual physical left in GLD inventory, but I do not know the current physical to paper ratio.

    • On March 25, 2014 at 9:35 am,
      b says:

      I don’t follow gld so I really don’t know, but an addition to gld was being talked about a lot last week on many sites, I guess its been awhile since anything has been added, some people think its a big deal other people took it as some kind of sign.

      • On March 25, 2014 at 9:37 am,
        b says:

        I guess it was a pre curser to a drop in price.
        Lets hope they don’t add any more lol

  5. On March 25, 2014 at 8:53 am,
    The" OWL COINLAND" REPORT.......O^OTB...WOOT says:

    That is the problem…….PAPER….for the advantage of the manipulators….

  6. On March 25, 2014 at 9:13 am,
    BeaverBob says:

    Hasn’t physical gold often been pulled out of the GLD after a substantial rally and dumped on the market to smash the price? I think so…, thus this is different.

    • On March 25, 2014 at 10:56 am,
      CFS says:

      No. The large sales of GLD pretty much track with Shanghai imports. Paper gold inventory is used as a float for small sales and purchases.
      Prices are determined currently solely by the COMEX futures market.
      It is when physical is no longer available through futures delivery on the COMEX that we will see a jump in the price. Last time I checked there was about 14 tonnes on the COMEX for possible delivery. i.e. less than a month’s supply. But inventory comes and goes, so that does not mean the COMEX has to run out next month.
      (There is also a rumor that some COMEX deals have been settled in cash recently, which is what will happen in a COMEX default. (Failure to deliver)

      • On March 25, 2014 at 12:10 pm,
        b says:

        No, the Comex is not going to default

        Izabella Kaminska

        There’s a stupid rumour going around in the gold community that the Comex is “bleeding” inventory (especially from the JP Morgan vault) and that this will in some way compromise delivery that causes a default.

        Kid Dynamite has already done the bulk of the heavy lifting in trying to debunk this story, as has Miguel Perez-Santalla at BullionVault, but we wanted to emphasise some points that go beyond the mechanics and which might be helpful.

        First, it seems that many people are not understanding the basics of the futures system.

        Futures are a zero sum game. One person goes long, another goes short. At the end of a set period, one party is either in the money or out of the money. What determines who wins is the performance of the underlying market that the future is linked to.

        Now, there are many, many, many futures markets that never take anything further than that.

        That is, when the future expires one person either pays the other person what they owe them, or they close that position and roll it onto the next period in question at a loss or a profit — probably having to put up a bit more margin to the exchange if their position is the one that’s out of the money. In short, these markets always settle in cash, and consequently there is never an option for delivery.

        But there are, of course, a number of legacy markets where delivery continues to be an option. This is mostly due to historical reasons, from the days when futures were used by end customers for sourcing stock as well as financial speculation. But, delivery or no delivery, futures always converge to the spot price upon settlement.

        The only way futures influence underlying is by either making it worthwhile for the physical market to store and hedge, or by making it very much not worthwhile to do so.

        What’s more, even with a delivery option, it is entirely possible for a futures market to exist without any sizeable inventory in place.

        In the gold market, inventory builds up when there is an incentive to keep your gold in the exchange system of warehouses. This can be down to a multitude of different reasons. Among them is the fact that if you want to hold physical gold as an investment, you might prefer to do it as part of an exchange system, since this ensures some degree of liquidity by creating a near cash equivalent bearer instrument. But there may also be an interest rate incentive in doing so, since you can easily hedge your gold in cash-and-carry mode. Other times, it’s just another warehousing option.

        Either way, putting your gold into the system grants you the option to a warehouse receipt (the difference between eligible or registered). Here’s Perez-Santalla explaining the significance:

        A warehouse receipt is a bearer instrument much like a check. It can be endorsed from one party to another. The holder of the receipt pays the storage costs. Most times when people take delivery of a warehouse receipt they leave it with their brokers. In some cases people may want to take possession of the warehouse receipt themselves. This is rare, just like with equity or bond certificates; no one actually takes delivery of the documents any longer. But it is still possible for a fee.

        If a person owns a warehouse receipt, the gold that it represents is still in the registered stocks, even if they have taken physical delivery of the document. They can always redeliver these receipts onto the exchange by selling contracts.

        If you’re long a future and want to take delivery rather than cash settle or roll on, you put in a delivery notice.

        If you are short a future, you can either close it out by buying back the short, and rolling it on, or you can choose to deliver. Chances are that a short that is about to deliver already has a registered amount of stock, hence why he didn’t cash settle ahead of delivery.

        If he doesn’t, it is his responsibility to source the stock — or in actual fact a gold receipt — so that he meets the delivery requirements.

        If no existing receipts are available (not usually the case), he can always deliver fresh gold stock into the exchange system and create a new receipt for the purpose of meeting his liability by the time of settlement.

        The responsibility is always that of the short counterparty, not that of the custodian warehouse banks who are providing a warehousing and depository service.

        One last point, much more interesting than a short who doesn’t have the inventory and is caught out by an unexpected rush of delivery notices –and who at worst has to bring in new gold into the system to meet his liability — is if there are too many shorts who do have lots of inventory, since this implies there is some sort of interest rate incentive for them keeping physical gold in the exchange system, whilst shorting the future. It also implies a lack of interest in the longs that take delivery, taking the gold out of the system.

        The fact that stocks are diminishing suggests, if anything, that shorts feel pretty comfortable with sourcing physical directly.

        It also implies there is now little interest-rate advantage in holding gold in the system and shorting it on the futures. That is, there is probably much less of an incentive to hold physical-and-carry at this moment.

        Final point, the idea that shorts can be surprised by a rush of delivery notices is also unlikely since there’s a position limit system in practice ahead of delivery. This is intended to prevent cornering of the market, by ensuring that a dominant position can never be accumulated by one party in a such a way that the physical market is overwhelmed.

        Kid Dynamite did a good job of explaining how this is the case a few years ago, and why — contrary to gold community chatter — position limits consequently have a bearish effect on the market rather than a bullish one.

        All in all, there’s nothing to see here, please move on…

        • On March 25, 2014 at 12:24 pm,
          The" OWL COINLAND" REPORT.......O^OTB...WOOT says:

          Kid Dynamite…………just blow a hole in his safe……and the inventory is leaving….

          • On March 25, 2014 at 12:29 pm,
            CFS says:

            And as for a position LIMIT, What the hell do you think all the complaining to the CTFC has been about. Position limits are ignored.

        • On March 25, 2014 at 12:27 pm,
          CFS says:

          EXCEPT the dealers are OFTEN ON ONE SIDE OF THE TRADE. That’s why they are called dealers.
          If this story were true there would be no need for dealer inventory at all.

        • On March 25, 2014 at 1:27 pm,
          CFS says:

          These comments from a russian reporter in the UK? Looks to br in her twenties…

          http://ftalphaville.ft.com/

  7. On March 25, 2014 at 9:29 am,
    b says:

    A few people have been saying the gld drawdowns were to satisfy eastern demand.
    Might have been no more than just people selling shares.

    • On March 25, 2014 at 10:59 am,
      CFS says:

      b, for your own safety, you should not be in the gold market.

      • On March 25, 2014 at 11:13 am,
        Steven says:

        I would say that if b must be in the gold market b should pay cash and take delivery and not take any guff about leaving it with a bank for safe keeping.
        Anything entrusted to a bank will be lent no matter what.

        • On March 25, 2014 at 11:24 am,
          Big Al says:

          Always been my philosophy, Steven!

        • On March 25, 2014 at 11:42 am,
          b says:

          What are You talking about Steven?

      • On March 25, 2014 at 11:39 am,
        b says:

        I think you might consider yours cfs. What was that to yourself b true?

  8. On March 25, 2014 at 12:00 pm,
    CFS says:

    I just checked dealer inventory on the Comex. It stands at 19.83 tonnes. Roughly equally split 6.66 tonnes at JPM, HSBC, Scotia each just over 6 tonnes and Manfra at a very small amount.

    • On March 25, 2014 at 3:29 pm,
      The" OWL COINLAND" REPORT.......O^OTB...WOOT says:

      thanks…….cfs………

  9. On March 25, 2014 at 6:40 pm,
    CFS says:

    GLD inventory dropped today by 2.7 tonnes.

  10. On March 25, 2014 at 6:54 pm,
    CFS says:

    I did look at GLD data. There were no net sellers of GLD gold paper, so you can bet the house that this 2.7 tonnes is now on route to shanghai, possibly via Switzerland for melting into Kilo-bars.
    2 major refiners in Switzerland are working 24 hours a day taking London gold and producing .9999 pure Kilo-bars. This limits the rate at which China is buying gold.

  11. On March 25, 2014 at 6:58 pm,
    CFS says:

    Looking through Bank deposit receipts I see that today,

    we had 2 customer withdrawals:

    i) Out of HSBC 50,001.889 oz
    ii) Out of Scotia: 3215.000 oz (10 Kilobars?)