Cory's Insights – Thu 19 Nov, 2015

Funds are crucial for a rising gold price

This article from MarketWatch detailing the capital outflows out of GLD is not telling us anything new. However it is part of a bigger overall picture for the precious metals. While we talk about coin demand the fact is for a sustainably higher gold price the sector needs funds, including ETFs to start investing again.

Funds have huge books and only a small percentage (say 5 to 15%) would go a long way in these beat down markets. Since the peak in precious metals in 2011 there has been a stead outflow of capital – as can be seen in the chart below. The good news is the pace of outflows has slowed but when it turns is only a guessing game right now. Eventually sums of money will begin entering the gold sector which is why it is important to watch the sentiment towards the precious metals from a fund level.

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How investors are abandoning gold, in one chart

Money in GLD falls to level last seen in January 2009

Gold has suffered a rough month, with prices dropping to levels last seen in February 2010.

You can see just how much the metal has fallen out of favor by looking at the investor money rushing out of the SPDR Gold ETF GLD, +0.95% a popular way to get exposure to gold.

The amount of money in GLD has dropped to its lowest level since January 2009, according to FactSet data. That’s shown in the chart below. Back then, the U.S. was in recession and U.S. stocks were still two months away from finding a bottom.

FactSet data as of Nov. 16, 2015

As the chart shows, the gold ETF didn’t see much inflow on Monday, when gold futures GCZ5, +1.09%  marked their largest single-session gain in more than two weeks as investors bid up safety plays in the wake of the Paris terror attacks. GLD’s assets under management edged up to $23.08 billion on Monday from $23.01 billion last Friday, according to FactSet data.

Goldman Sachs analysts are among those sounding bearish lately on gold and other commodities, though they still see the “long-term strategic case” for holding commodities. On the other hand, one longtime mining fund manager has given four reasons why gold could jump this year.

  1. On November 19, 2015 at 11:31 am,
    CFS says:

    While what Marketwatch details mat be true, I fervently believe it is TOTALLY irrelevant.
    Any market that shows a reduction in production, combined with increasing sales AND dropping prices is not a free market, but a rigged market, a corrupt market.
    We must all now be aware that with a price determined solely by a paper market, AND a TOTAL FAILURE to regulate the paper market has resulted in what we see.

    I am positive, however, when the supply of physical gold and silver fails to meet physical demand, we will return to a free market in which the price of physical gold and silver WILL BE DETERMINED by true supply and demand, and that prices will be much higher.

    • On November 19, 2015 at 12:50 pm,
      Frank from moscow CCF says:

      ditto….I agree……….

    • On November 19, 2015 at 1:14 pm,
      Marty says:

      Here, Here!

    • On November 19, 2015 at 1:17 pm,
      Frank from moscow CCF says:

      wonder what the new ratio is at comex………was 300 to 1…………(paper to phyz)

    • On November 19, 2015 at 7:09 pm,
      Tad says:

      Yep. Agree CFS. That’s why we’re all here 🙂

  2. On November 19, 2015 at 12:05 pm,
    Jay Linn says:

    What happened to Doc? Is he on vacation?

  3. On November 19, 2015 at 12:26 pm,
    FranSix says:

    I think people should focus on redemptions rather than capital outflows.

  4. On November 19, 2015 at 3:05 pm,
    Frank from moscow CCF says:

    SGT report….has a special comment on the History channel and ISIS….. which is to air tonight.

  5. On November 19, 2015 at 3:08 pm,
    Frank from moscow CCF says:

    Dave Morgan at SGT report………compares the interest rates which one receives on CD, and hyperinflation …