Jeff Clark, Senior Precious Metals Analyst, GoldSilver
NOV 3, 2016
I’m always looking for clues about the gold and silver markets. And this one I’ve been watching keeps getting stronger.
If you’re someone who’s worried about the gold price, or frustrated by its recent price action, this data says that worry is misplaced.
This clue has been on my radar for several months. And as best I can tell from all the research conducted by myself and others, it is making its strongest bullish signal yet.
It’s a simple measure, yet packs a powerful message for precious metals investors.
It has to do with the holdings at ETFs and other gold funds. It’s pretty straightforward: the metal holdings of funds—which are mostly dominated by institutional investors—tend to reflect whether they are bullish or bearish.
If the number of holdings in these funds drop, it basically signals that shareholders are bearish. They’re selling their gold, in other words. If they’re buying shares—or not selling in the face of falling prices—they are generally bullish.
It doesn’t necessarily mean they’re right about the future, but it does show whether they are positive or negative about gold. If they think there are reasons to continue holding gold, they hold or buy more. If they believe there is less reason to own gold or think the price is headed down, they sell.
Here’s a good example. In 2013—an ugly year for gold—the holdings at GLD (SPDR Gold Shares) fell through the floor, right with the gold price.
GLD is dominated by institutional investors. It’s how many mainstream fund managers chose to get exposure to gold (even though I’ve shown these funds are risky and should be avoided). And in 2013 many fund managers dumped their GLD positions. This action clearly signaled they had turned bearish.
But today, in spite of a languishing gold price, institutional investors have held on to their GLD positions. Take a look.
In fact, holdings in GLD have slightly increased since the price dropped hard in September.
In other words, institutional investors believe they should hold on to their gold shares—they see sufficient risk in the monetary system and/or believe the price will march higher. Otherwise, they’d be selling.
The message is even stronger when we zoom out and take a big picture view…
The following charts, from our Australian friend Nick Laird of goldchartsrus.com, show holdings from all global gold funds and metal depositories. Since this data includes physical holdings and not just shares, any clear direction in the amount of holdings would send a strong message: if they’re selling, they’re bearish… if they’re holding on or adding to their holdings—despite whatever the current price may be doing—it signals they’re bullish.
Here’s what Nick’s research shows for gold over the past 20 years:
This data shows that there has never been a bigger divergence between gold holdings and the gold price. In fact, despite a flat gold price (or perhaps because of it), institutional investors have bought more metal
The disparity is even bigger in silver.
Silver ETFs tend to have more retail investors than gold ETFs. But you can clearly see that silver investments in both funds and depositories have soared to a new record level. Those levels are more than twice what they were during the financial crisis of 2008-09. And when the silver price recently fell, investors loaded up.
The message here is clear:
• Investors are bullish on gold and silver. Many are buying more metal. Despite the current flat price, nobody’s selling on a net basis.
This doesn’t say things couldn’t reverse. What it is saying is that today, institutional investors see a strong reason to not just hold on to their gold and silver but to buy more. The price drop has been their opportunity to pounce. It’s safe to assume that they believe the reasons for holding precious metals have not gone away.
Do you see heightened risk in our economic and monetary system, too? Are you, like many of these investors, taking advantage of the price weakness to acquire more gold and silver for your currency? I recommend we follow their lead.