13 March 2014

How ETFs Haven't Altered The Dynamics Of Gold

Have a post up on the corporate blog How ETFs Haven't Altered The Dynamics Of Gold where I have a go at the mainstream finanical narrative that gold ETFs were a “game changer for the gold industry”, making it easier for investors to buy gold and having a positive impact on the gold price. If you properly classify bar/coin and jewellery bought for investment reasons then that accounts for over 11,400 tonnes of physical gold compared to only 2,600 tonnes of ETF investment between 2004 and 2012. More at the link.

Still snowed under with work so fustrated at limited blogging capacity. Just one quick FYI from a contact Ronan on a soon to be launched gold ETF from Axel Merk:

This Trust seems to follow the standard format, a trust backed by allocated physical 400oz bars. JP Morgan will be custodian. The differentiating factor in this trust will be that it holds other types of gold in addition to 400oz bars, such as smaller bars and even coins, and small investors will be able (if they want) to redeem shares for gold bullion, which is a new angle.

There is a web site which seems to be on hold www.merkgold.com until after the IPO. See link for one of the filings.

I'm surprised anyone would think more gold ETFs are needed, but maybe they think the redeemability in small sizes will be attractive. I would note that redeemability at any size into any coin or bar was a feature of Perth Mint's ASX listed gold product PMGOLD when launched in 2003. Ten years later they are catching up. The holding of smaller bars will just add to costs, but as they don't have a Mint out the back, I suppose there is no other way for them to offer than redeemability.

Merk has some good articles on gold here, quote: "I am an optimist. I’m no conspiracist. I just happen to think the road to hell is paved with good intentions. As a result, I own gold".

FYI, you may also find this paper by CME Group having a go at gold ETFs versus Comex futures of interest/amusement, quote:

"While there is a place for ETFs in any investment portfolio, there are several drawbacks that do not make them the first choice for individuals wishing to invest in gold.

When the goal is to simply benefit from a rise or fall of the price of gold, COMEX Gold futures are the logical choice. COMEX Gold futures offer the investor a fast and accurate pricing mechanism, the ability to leverage their trading strategies and the security of doing business on an exchange that has guaranteed the performance of each of its transactions for over 100 years."

14 comments:

  1. I want to thank you Bron for your measured and rational discussion of the precious metals markets. You are like a beacon of light amid the murky seas of ignorance and confusion. Please continue your fine work and do not be discouraged by lesser mortals who accuse you of bias and duplicity.

    ReplyDelete
  2. Bron -
    it looks like that Merk product will not hold other types gold (it will hold London bars), but will acquire them for certain redemptions...

    aside, the APMEX product is still in the filing stages with the SEC... the most recent filing is from mid Feb

    ReplyDelete
  3. Bron - I'm not sure about this (sorry I was unable to leave a comment on the actual post) ETFs not being that important.

    You shouldn't compare the change in ETFs/change in bars & coins with the price, but the change in price. If you do that you get (my data only goes back to 2006) a positive correlation of 0.58 for ETFs and a negative correlation of 0.55 for bars & coins. Which suggests to me ETFs are the price makers and bars/coins the price takers.

    ReplyDelete
  4. LET'S HEAR FROM ARCHIE BELL OF THE DRELLS, SINGING ABOUT BANKSTER BILL AND THE SHILLS:
    Hi everybody
    I'm Bankster Bill of the Shills
    From New York City
    We ghost bid and we suppress
    Just as good as we want
    In New York we just started a new scam
    Called the “Shorten It Up”
    This is the music
    We shorten it up with

    First shorten up on the contracts
    Come down now, silver
    I want you to short it up for me now
    Oh, yeah

    Shorten up on that gold now
    Short it up
    Ha, ha, yeah
    Now let that chart price fall down
    Oh, yeah
    Shorten up on that option now

    Yeah, you do the shorten up
    Yeah, now
    I said, if you can do it now
    It sure won’t be tough
    Now look here, come on now
    Now make it fall now

    Let's shorten it up now
    Do the shorten up
    Everybody can lose it now
    So get to it

    We're gonna shorten up
    Let's do the shorten up
    You can do it now
    So baby, get to it

    Look out below now
    It’s the bankster’s last resort
    Everybody can lose it
    And you can’t get too short

    Come on and shorten up
    Let's shorten it up now
    Let's shorten it up now
    Shorten it up

    Do the shorten up
    Come and shorten it up
    shorten it up now

    Come on now, Billy
    Shorten it up
    Oh, yeah
    Sock it to them now
    Shorten it up

    Come on and shorten up that gold
    Oh, yeah
    Now look here
    I want that chart price
    To fall down there
    Shorten it up now
    Oh, yeah
    Now shorten it up, option
    Yeah
    Now everybody shorten it up now

    Now look here
    We gonna make it fall down for you now
    We gonna make it fall down now

    Shorten it up
    You can get it
    Look out below
    Pull out the rug

    Shorten it up now
    Everyone trader outta cash
    Come on and shorten it up
    Shorten it up now
    You can do it...

    ReplyDelete
  5. Bron -
    we need to look at average demand in each category before and after the ETFs were created... not aggregate since the ETFs were created.

    if you have that data, I am guessing it will tell a different story.

    -KD

    ReplyDelete
  6. Bron-
    I think we need to listen to The Hollies:
    "IT AIN'T LEGAL, IT'S OUR BIG SHORT"

    We’re never long
    With many a rug pulls
    That leads us to way down there
    Who knows where

    And we’re strong
    Strong enough to tank the price
    It ain't legal, it's our big short

    Our welfare is our big concern
    No burden our position to bear
    We'll get down there

    For we know
    It will not encumber us
    It ain't legal, it's our big short

    If we’re driven at all
    We’re driven to suppress
    That silver price chart
    And we collude we confess
    We get our cash from the Fed

    It's a big short load
    From which there is no return
    While we're on the way down there
    Profits we’ll not share

    Our short load
    Doesn't weigh us down at all
    It ain't legal, it's our big short

    It’s our last resort
    It ain't legal, it's our big short

    ReplyDelete
  7. Now Let's Here's From James and Bobby Purify

    "I'M YOUR BANKSTER"

    I pull the string and I'll wink at you, I'm your bankster
    I'll do funny things if you want me to, I'm your bankster
    Mm. I'm yours to have and to hold
    Darling, I've got full control of your silver
    I Pull them little strings and I'll kiss your lips, I'm your bankster
    Snap my fingers and I'll turn me some paper, I'm your bankster
    Mm, your every trade is my command
    All you got to do is wiggle my little hand
    I'm your bankster
    I'm your bankster
    You’re my toy, just a funny boy
    You makes me laugh when you're blue
    Just be wonderful, just do what you’re told

    You’ll do anything for me
    I'm your bankster
    I'm your bankster
    I just pull them little strings and I'll sing you a song, I'm your bankster
    Make you do right or make you do wrong, I'm your bankster.
    Mm, treat me good and I'll do anything
    I'm just a bankster and I hold your string,
    I'm your bankster
    Your walking, talking, kissing, loving bankster
    You’re hanging on my string,
    I'll do anything, love you 'n' kiss ya
    I’m your bankster.

    ReplyDelete
  8. Hi Bron,

    Thanks for your post and site.

    Off topic but I came across the following page a couple of days ago and it caught my interest:

    http://pragcap.com/a-possible-model-for-the-price-of-gold

    The valuation model seemed to correlate reasonably well with the price over the period 1982 to 2011.

    I was curious and wondered what the model would show post 2011, so downloaded the relevant data and did a bit of number crunching.

    I seem to have replicated the results

    https://dl.dropboxusercontent.com/u/21076225/gld%20model.xlsx

    The model seems to work up to 2011, after which the relationship with real interest rates completely breaks down.

    Was interesting to me.

    Alex

    ReplyDelete
  9. LET's GET BACK ON TOPIC---SHALL WE?

    HERE'S ANOTHER FAMOUS "TWIN-SPIN"!

    SIDE 1:
    UNCLE GLD/ADMIRAL SLV

    We're so sorry, Uncle GLD
    We're so sorry if we caused you any pain.
    We're so sorry Uncle GLD
    But there's no gold left at home
    And I believe it’s gonna drain.
    We're so sorry but we haven't replaced an ounce all day.
    We're so sorry, Uncle GLD
    But if anything should come in well be sure to report a gain

    We're so sorry, Uncle GLD
    But we haven't stacked a bloody bar all day.
    We're so sorry, Uncle GLD
    But the kilo’s on the melt and we're so easily compelled to say

    Gold across the water. (Water)
    Shipped across the sky.
    Bars across the water. (Water)
    Heads each day to Shanghai.

    Admiral SLV notified me,
    He had to have some worth or he couldn't get to sea.
    I found another crook and I charged another fee, heard another lie.
    (Another Lie?) (Tungsten was in the melt so I told another lie.)

    Gold across the water. (Water)
    Melted on the fly
    Kilos across the water. (Water)
    Heads each day to Shanghai

    SIDE 2:
    REDEEMIN’ AND A DRAININ’

    All the shares redeemed and it’s all empty.
    Banksters in the vault-just another day.
    Gold is safe in Shanghai just been taken away
    Redeemin’ and a drainin’ Its not going to stay.

    They dropped it for a refiner they passed along the way.
    Well they took the gold with ease and pretend to pay.
    They knew the tunsten’s in the gold;
    They knew its gonna stay.
    Redeemin' and a drainin’all the gold today.

    All the shares redeemed-GLD is empty
    Bankster’s in the vault-just another day
    If they didn't tell us, It could leave today;
    Redeemin’ and a dreamin' –all the gold’s away
    Redeemin’ and a drainin’ GLD today
    Redeemin’ and a drainin’ -its in Shanghai today

    ReplyDelete
  10. Apologies for not responding, have been snowed under. Have been having a offline discussion with Kid Dynamite and will do a followup post.

    I have been looking at this simplistically, seeing the increase in coin/bar from 100t to 300t post 2008 vs ETF's relatively flat demand (apart from 2013) as indicative of who was driving price.

    Thinking further about the GFMS stats and price formation I think it is problematical to derive much from them as GFMS make supply = demand, it doesn't really tell us about the bid and ask depth in the market which is what actually affects the price.

    ReplyDelete
  11. Hey---I noticed another bankster jumped to his death:
    http://nypost.com/2014/03/17/investment-banker-leaps-to-his-death/

    Well---LET'S HEAR FROM THE "LOVIN' SPOONFUL"

    "JUMPER IN THE CITY"

    Hot town, jumper in the city
    Back of his neck getting dirty and gritty
    Pushed down, isn't it a pity
    Always seems to be a jumper in the city

    All around, banksters looking half dead
    Flopping on the sidewalk, streets looking mighty red

    But at night the world is cold
    Stay up and suppress the gold
    He’s gonna manipulate all night
    Despite the law it'll be alright

    And babe, don't you know it's a pity
    That the days can't be like the nights
    It’s a jumper, in the city
    It’s a jumper, in the city

    Cool town, evening in the city
    Dressing so fine and looking so pretty
    Fat cat, isn’t it pity
    Buildings on every corner of the city
    Now he’s wheezing like a bus stop
    Running up the stairs, tryin’ to make it to the rooftop

    But at night the world is cold
    Stay up and suppress the gold
    He’s gonna manipulate all night
    Despite the law it'll be alright

    And babe, don't you know it's a pity
    That the days can't be like the nights
    There’s a jumper, in the city
    There’s a jumper, in the city

    ------ instrumental break ------
    Hot town, jumper in the city
    Back of his neck getting dirty and gritty
    Pushed down, isn't it a pity
    Always seems to be a jumper in the city

    All around, banksters looking half dead
    Flopping on the sidewalk, streets looking mighty red

    But at night the world is cold
    Stay up and suppress the gold
    He’s gonna manipulate all night
    Despite the law it'll be alright

    And babe, don't you know it's a pity
    That the days can't be like the nights
    There’s a jumper, in the city
    There’s a jumper, in the city

    ReplyDelete
  12. So--Ahead of All The Anticipation Of The Fed-Taper-Pation, Let's Hear From The BEE GEE's Shall We?

    "Janet, How Deep Is Your Taper?"

    “Janet, How Deep Is Your Taper"
    I see your eye on the back of the “one”
    I feel the ink engraved on the Washington
    And the moment I hear your worthless blather
    I wanna get in my car and run

    And you come to me on all my screen TV’S
    Keep me drowning in paper and then abruptly leave
    And when do you taper the taper?
    Janet, How Deep Is Your Taper?

    How deep is your taper?
    How deep is your paper?
    I really need to learn
    'Cause we’re tired of your “fed tools”
    Bringing gold down
    When you all should let us be
    We don’t belong to you, trust me

    I can’t believe in you
    You know the printing of the paper is power
    You're the blight in our deepest darkest hour
    You're my bankster who has caused our fall
    And you may not think, we care for you
    When you know down inside, that we don’t give a poo
    And when do you taper the taper?
    Janet, How Deep Is Your Taper?

    How deep is your taper?
    How deep is your paper?
    I really need to learn
    'Cause we’re tired of your “fed tools”
    Bringing gold down
    When you all should let us be
    We don’t belong to you, trust me

    ReplyDelete
  13. Jake,

    Your songs are becoming spammy, and the one on the banker is insenstive to say the least.

    Occassional one on topic, no problem, but this blog is not a platform for other people's content.

    ReplyDelete
  14. So Who's Content Is This Blog About?

    Yours?

    Whata A Bore.

    ReplyDelete