Gold ETFs shed 31 tons in one day

Yes, we heard those assurances louder than any holiday songs last December, and yet, gold bullion appears poised to possibly test the high $1,200s (as does silver with regard to the $25 mark) even if interim upward corrective bounces materialize (as they perhaps ought to, as RSIs flash “oversold” on a short-term basis). Veteran market technician Merv Burak’s long-term indicators still contain the word “bullish” on the label, but as he says, the metric is “getting weaker each week.” Both his short-term and intermediate term diagnoses are labeled “bearish.”

Predictably, as the market has no longer been “willing” to support outlandish gold price claims for the near term (who can forget the Buzz Lightyear-like declarations made in the first day or two of 2011 trading?), some crystal ball gazers have now turned to claiming that they had seen the gold bubble long ago, and that no one ought to be surprised by recent market events, ‘cause they had “been told so.” Whatever fits the story, of course. If that fails, one can always resort to allegations of the markets being raided by Imperial Storm Troopers.

Had someone indeed been paying attention to the trends underway in certain niches of this gold market, they might have noticed that something might be slightly askance with the fact that while gold soared to new records in 2010 and that while it managed a 29% return on the year, the flow of money into gold ETFs took a 41% “haircut” vis a vis their 2009 levels.

Facts are facts, and 361 tonnes is not in the immediate neighborhood of 617 tonnes (the amount ETFs absorbed in 2009, when the global crisis was still in somewhat of a full swing). A Bloomberg-tracked cumulative tally of (ten different) ETP holdings had already indicated that 2010’s inflows were showing a 17% gain in the year, as compared to a 51% rise in 2009. If only someone had dissected that pattern, too…As for the current situation, well, someone is still glossing over the fact that on Tuesday, assets in gold-backed exchange-traded products fell by 31 tonnes. The decline in balances was the largest in percentage terms since the stomach-churning days of October of 2008.

As early as the summer of 2008 we alluded to the potential accelerative effects of ETP ebb and flow on gold prices. Do bear in mind that the advent and growth of such vehicles took place amid (in fact almost in the middle of) the decade-long ascent in gold values. To say that the “jury” is “agnostic” as to what might happen to prices of the underlying, because of the size and presence of such instruments during a sideways-to-downward market cycle, is to be extremely…modest.

Oilprice.com’s “Mad Hedge Fund Trader” notes that “the [recent] selling [in gold] has been so aggressive, that it has spread like an out of control virus to the rest of the entire metals complex. To throw the fat on the fire, one large hedge fund was seen yesterday unloading a long term position which took it down to a new three month low at $1,324. Others such hurried liquidations are expected to follow. This is truly the commodity that takes the stairs up and the elevator down.”

We leave you today with a picture (literally) of what “peak gold” looks like. Surely, you’ve heard and read by now that gold mining output is headed into oblivion. Okay, then. Simply turn this chart upside down and what you’ve learned might be correct. Hot off the presses; behold mine output (in Ron Burgundy’s favorite shade) for the past five years, as tallied by GFMS. Peak-ish, no? Or, could it have anything to do with…prices/margins?

Jon Nadler is a Senior Analyst at Kitco Metals Inc. North America

Websites: www.kitco.com and www.kitco.cn

About the Author
Jon Nadler

Jon Nadler is senior metals analyst with Kitco Metals Inc. in Montreal.

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