Gold bubble worries lead to significant sell-off in top gold ETF

Investors have been taking profits in their holdings in the world's largest gold ETF on 'burst bubble' worries

LONDON - 

The world's largest gold-backed exchange-traded fund, SPDR Gold Trust (GLD), noted that its holdings fell to 1,116.247 tonnes, worth over $41 billion at the current gold price, as of December 8^th.  This represented a fall of 1.2 percent or more than 13 tonnes in a day and was the largest one-day drop in around five months according to a Reuters report.  The SPDR Gold Trust ETF hit a record high of 1,134.03 tonnes on June 1, and up until recently had been climbing back towards this level again. 

Further falls were expected to be announced today as the gold market is going through a period of uncertainty and some investors are liquidating some or all of their holdings, and taking some hefty profits, in case the recent gold price falls are because a gold price ‘bubble' has burst.

The SPDR Gold Trust gold holdings are larger than those of most nations' Central Banks, and there has always been a worry that this overhang of gold, effectively in fickle investors' hands, could in itself prompt a catastrophic fall in the gold price if sentiment moved sufficiently to generate a major sell-off, leading to a downwards price spiral. 

So far this has not happened, and with the weaker dollar this morning seeing the gold price pick up, and continuing economic uncertainty, there is evidence of buyers coming back into the gold market seeing the earlier falls as a good buying opportunity, and ignoring the ‘bubble' talk.

There is no doubt that the recent sharp movements in the gold price that have seen it fluctuate up and back down by nearly $100 in the past weeks make this a market for those with nerves of steel.  Several observers have warned of excessive volatility ahead and these warnings are definitely coming into play.  The fundamentals which have been driving the gold price upwards are still in play, but as we have warned before on Mineweb, markets are often driven by investor sentiment and if the force is no longer seen to be with gold there could be even more volatility ahead for the price until some stability sets in.

Movements up or down in the SPDR gold ETF holdings will thus be watched with particular interest over the next few days as this will be a good indicator of where gold investment sentiment is trending. 

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responses to this article

Gold demand The question with the gold ETFs is whether the demand is sustainable; the sell-off shows that gold is not a long term asset class, but a safe haven, just like it has always been. If this is the case, the ETF demand may not be sustainable, and could . .more be a source of huge flows of inventory onto the market. The best case scenario is that investors who bought the ETF hold on to their gold holdings - but that best case scenario means no new future demand. The worst case is that when/if a recovery comes, investors, especially retail investors who dominate ETF holdings, will revert to type and use the gains from the ETF to fund mainstream asset classes like equities, property etc. That will mean negative demand. In the meantime, the industry, mainly through the World Gold Council, has done nothing to secure the long term demand of gold: there has been no innovation in investment products since the launch of the ETFs 5 years ago, and it seems that they are neglecting the jewellery and industrial markets for gold, which have historically been stable and sustained sources of demand. . .less by Simon on December 09 2009, 05:34 Find this comment inappropriate? Report it

Gold Demand The question with the gold ETFs is whether the demand is sustainable; the sell-off shows that gold is not a long term asset class, but a safe haven, just like it has always been. If this is the case, the ETF demand may not be sustainable, and could . .more . .more be a source of huge flows of inventory onto the market. The best case scenario is that investors who bought the ETF hold on to their gold holdings - but that best case scenario means no new future demand. The worst case is that when/if a recovery comes, investors, especially retail investors who dominate ETF holdings, will revert to type and use the gains from the ETF to fund mainstream asset classes like equities, property etc. That will mean negative demand. In the meantime, the industry, mainly through the World Gold Council, has done nothing to secure the long term demand of gold: there has been no innovation in investment products since the launch of the ETFs 5 years ago, and it seems that they are neglecting the jewellery and industrial markets for gold, which have historically been stable and sustained sources of demand. . .less by Simon on December 09 2009, 06:28 Find this comment inappropriate? Report it

the use of the term bubble is lazy Bears always like to come out to do their little speech when they can. Meanwhile gold continues upwards.. a 7 year bull market from $200. by gamma on December 09 2009, 06:36 Find this comment inappropriate? Report it

last sentence is the best ...."Movements up or down in the SPDR gold ETF holdings will thus be watched with particular interest over the next few days as this will be a good indicator of where gold investment sentiment is trending. " Oh yes, so if GLD goes up people . .more are buying and if it goes down people are selling. How delightfully insightful. In addition, the author writes, "Further falls were expected to be announced today". Really? Looks like gold is up today. . .less by What_what on December 09 2009, 06:37 Find this comment inappropriate? Report it

? It's a correction... gold was 120 above its 50 day MA... by gamma on December 09 2009, 06:39 Find this comment inappropriate? Report it

Gold ETFs dont have the gold they say they do - paper only these gold ETFs are frauds. they dont have the gold they say they do, Just go ahead and try to take a large physical delivery and see what happens. Get out of these and into mining shares by itolduso on December 09 2009, 06:40 Find this comment inappropriate? Report it

Normalcy within the Gold Bull Simply, these are short-termers taking profits or the weak-spined ones who can't tolerate the heat from the kitchen. Who can blame those whom sell at a profit? Me, I'm holding onto my equities because there is no, I repeat, no bubble here. If . .more anything, a healthy correction which yields greater gains going forward because idiot politicians have done nothing to keep their fingers out of the cookie jar! . .less by Hairy Herry on December 09 2009, 07:20 Find this comment inappropriate? Report it

ETF's Head of greelight capital sold all hisGLD holding and bought physical! There were dire concerns they were lending out their supposed holdings, and have no bylaws that allow an audit. Comex just recently stopped allowing physical delivery and offers . .more GLD shares or cash settlement....so Yes, the market can easily be manipulated at will. Problem is people are starting to figure out ETFs, Perth mint shares, Kitco holding shares are not real Gold/Silver. There are currently shorts on Silver at 4x the available Comex holding by JPM. So what was your question? . .less by Patriot on December 09 2009, 07:20 Find this comment inappropriate? Report it

sale of gold or sale of ETFs The ETFS purchased or sold are secondary market instruments and do not necessarily mean that the underlying gold bullion would have to be sold. As I understand it, this is only so in the case of a specific request by the holder to be settled in . .more bullion rather than cash. When the market is running State Street can issue new units in SPDR (and then will buy bullion to balance the weightings and conversely when the market drops, it can also redeem SPDR units (and sell bullion) . .less by B A on December 09 2009, 07:22 Find this comment inappropriate? Report it

Paper is not Gold " can issue new units in SPDR (and then will buy bullion to balance the weightings .....)" There may be a day in the very near future where they will have to settle, and not find Physical to be attained.......Ne: Madoff by Think and Learn on December 09 2009, 09:03 Find this comment inappropriate? Report it

Gold bubble? Yes, the increase in gold is due to a bubble, the bubble that's been building in the USDollar for the last 90 years or so, and especially since they got off the gold standard and started printing unbacked paper acting like it was real money. This . .more has been the mother of all Ponzi schemes. This bubble is now deflating more rapidly than ever and will soon join the fate of all other fiat currency. Check what Volataire wrote about paper money, over 200years ago. . .less by Vegiejoe on December 09 2009, 10:21 Find this comment inappropriate? Report it

Gold Bubble? The increase in gold prices are not results of a bubble in gold, but of the unwinding in the massive bubble built into the US$ over the past 25 years. The unauthorized unconstitutional printing of fiat money, not backed by anything is the perfect . .more scenario to create the mother of all Ponzi schemes. . .less by Joe on December 09 2009, 10:27 Find this comment inappropriate? Report it

Gold price movement It is good to see some of the froth come off the market. It is good to see some of the speculators leave. They will be back. Hopefully the price will be a lot higher when they try to get back in. by Randy on December 09 2009, 11:29 Find this comment inappropriate? Report it

gold bubble so when the dow jones sells off next time is that a bubble? don't embarras yourself with silly headlines by steven harper on December 09 2009, 21:55 Find this comment inappropriate? Report it

SPDR Gold Trust Folks, quit guessing about how GLD is set up. Here is the synopsis: The trust sells "Baskets" of GLD shares at the closest NAV price to qualified firms for sale at the going market price. NAV is calculated twice daily. A basket . .more is 100,000 Shares equal to 10,000 Oz of Gold. The proceeds buy 10,000 Oz of gold at market and the fund takes physical delivery within a week. The amount of Gold sold and used to cover expenses is deducted from total holdings and reduces the total gold holdings. That reduces the NAV by that many Oz X Price of Gold. NAV is only loosely connected to share price fluctuations, since once "Baskets" are sold, market forces predominate in share pricing. Please print out the GLD Prospectus and dig in. There are some points that I am not clear about on how Buyers and Sellers shares are balanced out. I suppose the market makers redeem seller "Baskets" when they fill. Any takers? Here is the Prospectus: http://www.spdrgoldshares.com/media/GLD/file/SPDRGoldTrustProspectus.pdf Added to RSS . .less by Marc Boyd on December 09 2009, 22:52 Find this comment inappropriate? Report it

Gold bubble GLD does not buy or sell gold. It receives deposits of gold from authorized participants that have sold shares short when they are at a premium, and receive new shares at par to cover their shorts. In the same way authorized partipants . .more redeem shares in exchange for gold when the shares are selling at a discount to gold. Thus movements of gold into or out of GLD have more to do with the premium or discount on GLD shares than any view on the desirability of gold as an investment. . .less by aknahow on December 09 2009, 23:24 Find this comment inappropriate? Report it

Morons If this is actually considered an insightful / professional commentary on the gold market GOD help us all ... by JJ on December 10 2009, 02:27 Find this comment inappropriate? Report it

GLD/SLV fraud the sell off in GLD may in part be due to lack of trust in the integrity of this ETF,s supposed physical holdings of bullion.Same goes for silver with SLV. MadeOff has taught lessons by FMOTL on December 10 2009, 05:24 Find this comment inappropriate? Report it

Bubble dynamics "This is why calling Gold a bubble should not discourage you from getting on board. What else are you going to do - invest in the Dow Jones or real estate?! I'm not pumping Gold, I already own it and I know what its worth. Mine ain't for sale at . .more current prices. But if this is a bubble, we're in the first leg! What the top callers and bubble callers don't get is that a bubble in financial markets lasts more than 2 months! We spent 1.5 years trying to get through the psychologically important 1000 level. Now that we've broken through, it would take at least 9-12 months for a parabolic thrust to play out. Oil took 9 months to make its final thrust after the breakout over $80 in 2007. We've gone 20% in 2 months. In bubble dynamics, that is barely qualified to represent the 1st inning! " . .less by propxchanja on December 10 2009, 07:58 Find this comment inappropriate? Report it

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