"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat

Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput


Saturday, May 3, 2014

Further Drawdowns in GLD

The reported holdings of GLD, the big gold ETF, are updated as of the close of trading this past Friday ( 5-2-2014) and they showed another reduction.

For the week, GLD showed a drop of 10 tons in gold holdings. Friday alone brought a drop of 2.7 tons, which I find rather remarkable considering the fact that gold over at the Comex shot up sharply when news hit the wires about the first of two helicopters being shot down over in Ukraine.

I have mentioned previously, that many in the West are looking at rallies in gold as selling opportunities. This seems to be the case with GLD. One might have thoughts that with the safe haven plays that we witnessed across the futures market on Friday ( Yen higher, gold higher, and bonds higher ) , that GLD would register an increase in gold holdings. That was not the case.

Western sentiment towards gold remains dubious therefore. Since the beginning of the year, GLD has dropped 16 tons of gold. Total holdings are now reported at 782.85 tons, a 64 month low!

I put a lot of credence in this big ETF as a gauge of Western-oriented investment gold demand. When gold was in a strong bullish uptrend, reported holdings rose along with the trend. When gold entered its current bear market, reported holdings began to drop alongside the move lower in price. Demand from Western-based investors has thus ebbed and flowed along with price which is as it should be.

When we see these sorts of divergences, with the Comex gold price going one way and the reported holdings of GLD going the other, it indicates that the move higher in price was being primarily driven by short covering over in the futures market. Short covering rallies are often quite spectacular and can be very compelling because they can drastically change the chart picture in a short time, but one needs to exercise caution because they can flame out just as rapidly as they flamed on, especially when the move is due to a geopolitical event. Such things are notorious for generating many wild swings in price.

Traders therefore need to be cautious and remain flexible. If GLD holdings begin to rise alongside of a rising gold price, that will be a friendly development. For the time being however, that is not what is happening.

Let's see how events over in Ukraine fare the rest of the weekend and what the opening of trade in Asia on Sunday evening here in the West brings our way.