Gold ETF Selling Slows

The second-biggest upleg of this secular gold bull was driven higher by the biggest stock-market capital inflows into gold seen in this same bull. That wasn’t the only driver, as spec gold-futures buying played a role too. But the main reason gold surged so sharply mid-year was American stock traders were buying GLD and IAU shares far faster than gold was being bought. Gold-ETF flows’ dominance showed in WGC data.

Q2’20 was where the lion’s share of gold’s last upleg unfolded. The yellow metal blasted 12.9% higher that quarter, fueled almost exclusively by an enormous 20.4% or 276.8t build in GLD+IAU holdings! The World Gold Council’s supply-and-demand numbers for Q2 proved gold-ETF demand was the only reason gold surged. Surprisingly overall global gold demand fell 10.6% year-over-year that quarter to 1,016.5t.

Gold’s biggest demand category jewelry collapsed 52.5% YoY, while traditional physical bar-and-coin investment also plunged 29.6%. Remember April and May were peak government-economic-lockdown months in officials’ attempts to slow COVID-19’s spread. People were too distracted to buy gold, trying to overcome the challenges of just living. They were also worried with job losses mounting, socking away cash.

Even if they wanted to buy physical gold, jewelry stores, and coin shops were mostly forced to shutter. But buying gold-ETF shares through brokerage accounts was as easy as ever. The only reason gold surged 12.9% in Q2 instead of plummeting is global physical-gold-bullion demand from gold exchange-traded funds skyrocketed an astounding 466.3% higher YoY to 431.2t! That was utterly-enormous 355.0t growth.

And American stock traders were mostly responsible for that game-changing gold demand, as that huge 276.8t Q2 surge in GLD+IAU holdings accounted for nearly 4/5ths of that world total! What is happening in these dominant gold ETFs’ holdings is overwhelmingly driving gold’s price trends. That’s why traders must pay attention to GLD and IAU. Their capital flows drive gold, silver, and gold-stock uplegs and corrections.

The day gold’s latest upleg peaked way up at $2,062 in early August, GLD+IAU holdings ran 1,765.0t. That happened to be an all-time record high, solely because of the impressive rise in IAU’s popularity. At 497.0t its holdings were their highest ever witnessed. But GLD’s at 1,268.0t remained 6.3% below their own record high of 1,353.3t from December 2012. IAU’s holdings soared 130.2% during that same span!

The month or so after gold’s latest topping showed a fascinating divergence between GLD’s and IAU’s holdings. By mid-September, GLD’s holdings had slumped 1.7% since gold crested 6 weeks earlier. Yet IAU’s climbed 4.0% over that same span, almost fully offsetting the losses in the much-larger GLD. Were retail stock traders starting to dump GLD shares while institutional ones continued to add IAU shares?

Differential GLD-share buying soon resumed though, while IAU’s holdings kept creeping higher to record after record. In mid-October nearly 10 weeks after gold’s last upleg had topped, GLD+IAU holdings finally peaked at 1,800.5 metric tons. Yet again stock-market capital deployed in gold via these dominant ETFs lagged gold’s upleg-correction cycles. But differential gold-ETF-share selling flared as gold kept selling off.

Gold’s correction following that last upleg was tricky, with the yellow metal mostly consolidating high in this selloff’s initial months. That failed to bleed off enough greed to yield a major bottoming, as I warned about in a gold-correction essay in mid-October. At that point, gold’s correction-to-date had still averaged relatively-high prices of $1,930. So American stock traders didn’t seem very worried that gold would fall farther.

But gold’s in-progress correction accelerated in late October and November, pummeling this metal to new correction lows. Finally at the end of November gold’s correction looked to be maturing, extending to 13.9% over 3.8 months. That was right in line with the precedent from this bull’s earlier corrections, which averaged 14.3% losses over 4.1 months. Gold had also fallen to oversold levels under its 200-day moving average.

So finally a strong case could be made that gold’s correction was largely over, that enough selling work had been done to sufficiently rebalance sentiment and technicals. GLD+IAU holdings had slumped back down to 1,722.7t by that day, down 4.3% from their mid-October record high and 2.4% since the day gold itself peaked in early August. But as usual that gold-ETF-share exodus would continue coasting well after gold.

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