Friday, February 29, 2008 @ 11:30 AM

Investor Demand Driving Gold Price Spiral?

From Daily Digest (Everyone) | Discuss | Print  

Speculators in commodity futures basically open a bet if another trader can be found to take the other side. In the majority of cases, the bet is closed out before expiration, settled in cash without the actual “stuff” changing hands. That got me thinking.

27-gldetf1

GLD and other gold ETFs are doing something very different than what futures trading used to do: they are taking tonnes and tonnes of the stuff off the market. In effect, investor demand via exchange traded funds has become a new phenomenon in the supply/demand equation, fuelling the price spiral like never before.

We took a look at some numbers from the SmartMoney ETF screener:

  • In December 2007, GLD was the seventh largest ETF by total net assets at $15.1 billion, placing it just below QQQQ which had $21.6 billiion total net assets.
  • In January 2008, GLD was the seventh largest ETF by total net assets at $18.7 billion, placing it below IVV, QQQQ, EEM, EFA and SPY.
  • On February 26, 2008, GLD was the fifth largest ETF by total net assets at $18.7 billion. It had eclipsed QQQQ. Only EEM ($23.1 billion), EFA ($47.4 billion), and SPY ($84.8 billion) were larger.

As of the close on February 28, 2008, StreetTRACKS Gold Shares held 639.44 tonnes of gold valued at $19,725,219,813 while the Comex Gold Trust held 59.93 tonnes valued at $1,857,851,989 for a combined total of $21,583,071,802 in net assets, eclipsing $17 billion assets under management in QQQQ.

gld_valut1

Take a look at the picture above. It is of gold bars belonging to the streetTRACKS Gold Shares ETF. That’s right. They have 639 TONNES of it. They have so much of “the stuff” that the vault resembles an IKEA WAREHOUSE. It’s simply amazing.

I for one am very interested to see how price action unfolds as performance-chasing State-Run Funds and institutions allocate away from traditional asset classes, pouring billions of dollars directly into crude oil, copper and other commodities. Bubbull, anyone?

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