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GLD Outflows Stop Sees Largest Gold Inflows Since 2012

Wednesday, February 12, 2014 18:05

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(Before It's News)

TND Guest Contributor: Nathan McDonald, Sprott Money Blog |

The year 2013 was the first down year since the start of the gold bull market that we currently find ourselves in. It was a year of extreme pressure on the price of “paper” gold. It was a year of intense demand for physical gold, largely due to investors finally realizing that paper gold and physical gold are not equal.

Of much controversy in 2013 was the topic of the GLD’s gold holdings. The GLD is still the most widely used method in which investors partake in the gold market. Unfortunately for these investors who choose to invest in this manner, they hold nothing more than a rehypothcated claim on nothing. The GLD has long been a drain on the real price of gold, diverting good intentioned investors into nothing more than a fantasy claim on paper gold, rather than the real physical metal that you can hold in your hands.

In 2013, the GLD’s holdings saw huge withdrawals that sparked many financial reporters to claim that there was a mass exodus from precious metals. They could not of been any more wrong. In fact, I believe as many other precious metals experts do, that this was simply large investors, financial entities and countries such as China and Russia is redeeming their GLD shares for physical (GLD can be redeemed via permission only in batches of 100,000 shares which is equivalent to 10,000 Oz of gold; essentially, if you’re an average investor, you own nothing). If this was the case, then this is incredibly bullish for gold, as it reduces the already tight physical market.

Now let’s skip ahead to real time. The GLD so far in 2014 has seen a reverse in this trend. I highly doubt ANY of those who had the ability to withdrawal physical last year are selling physical and buying back GLD shares. The GLD, is now once again adding to its position, and in fact, we have seen the largest gold inflows since November 2012. If the GLD is indeed purchasing physical as they claim, then this only adds more tightness to a market that is already struggling to meet current demand.

Precious metals guru Eric Sprott agrees and had the following to say in a recent King World News interview:

“If you have any contrarian in your spirit at all, this (gold) is the most contrary bet you can ever make. It would be most surprising as the year unfolds if we get buying in the (ETF) GLD.

Imagine for one second that instead of getting 900 tons (of gold) coming out of ETFs, we had 900 tons go into ETFs. That would be a dynamic 1,800 ton change, when we (only) mine something like 2,100 or 2,200 tons a year, ex-China, ex-Russia. That in itself would almost consume the year’s mine supply, let alone that China is going to buy more than the (entire) year’s mine supply based on the trends that we’ve experienced already.

I just think gold is threatening to blowout (to the upside), and I think when it does there will be lots of guys wanting to put money in. Then, of course, GLD will be forced to go out and buy some gold.”

One thing is for certain, physical gold has never been in greater demand. The smart money knows this; they know that the artificial paper market cannot keep the real price of physical gold down forever. Central bankers have to know this as well. The question is when will the two markets separate and go their own ways? Not if, but when this happens, I believe you will see a rise in gold that will stun the world.

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Nathan McDonald writes for Sprott Money Blog, part of Sprott Money Ltd., a leading precious metals dealer selling gold coins, silver coins and bullion bars online and over the phone. As one of Canada’s largest owners of gold and silver bullion, the company’s goal is to facilitate ownership of precious metals no matter how big or small the portfolio.