Gold ETF Holdings
Gold holdings in Exchange Traded Funds (ETFs), after falling nearly 40% since early 2013 are increasing again.
Despite declining holdings, Gold held in ETFs remains a far more popular way to invest in gold than buying physical bullion.
While Gold ETF holdings are massive, physical gold deliveries on the Shanghai Gold Exchange are much larger.
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Gold ETF Holdings
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The Rise and Fall (and rise again?) of Gold ETFs
Gold ETFs have made investing in gold easy. They became wildly popular in the gold bull run from 2006-2011 as convenient way to buy gold. Gold ETFs have also changed the way people view gold. We have long argued that gold is an assest not an investment. Gold is insurance against currency debasements and economic uncertainty. Gold is an asset to be held long term, not traded in a stock account.
Just as you hold your insurance policy, you don’t trade it, the same is true for gold.
Gold ETFs, however, have turned gold into a trade for retail investors, causing many to buy gold ETF shares for the wrong reason – price appreciation.
Most gold ETFs don’t allow physical delivery for retail investors, rather they provide exposure only to the price of gold. Under gold ETF schemes, holders don’t own gold, they own interests in shares representing gold. If the stock market closes, investors do not have access to their gold ETF shares.
This, however, doesn’t seem to concern the vast majority of American who are content with paper or digital assets.
Gold, via ETFs (and Comex trading) has been transformed into another class of paper/digital assets.
As we noted in “The Importance of Gold to Countries and Individuals“, Americans generally don’t care about or buy much gold, at least not in physical form. In the U.S., sales of American Gold Eagles are nearly non existent* compared to gold demand in China as evidenced by the amount of physical gold delivered on the Shanghai Gold Exchange.
American Gold Eagle Sales vs. Gold Delivered on the Shanghai Gold Exchange
No Shortage of Physical Gold Buying and Storing Options in the United States
Physical gold can be bought and stored in allocated insured vaulted accounts all over the world through companies such as JM Bullion LLC, Gold Broker, Gold Core, goldandsilver.com, Apmex, Blanchard Gold and Schiff Gold. While these options exist, the amount of gold sold via this method does not come anywhere near to the amount of gold “sold” via ETFs.
The American Gold Eagle coin, produced by the U.S. Mint is the best selling gold coin in the world and can be used to fund IRAs.
Sales of American gold eagles, like gold holdings in ETFS have declined along with the price of gold during the past few years. American Gold Eagle coins, however, did not experience the same massive increase in demand that ETFs had from 2006-2012. (see chart below)
Comex Gold Deliveries vs. Gold Delivered on the Shanghai Gold Exchange
While the volume of gold long and short contracts on Comex is immense, only a very small portion of those contracts result in actual physical delivery of gold.
The bulk of U.S. retail gold demand comes from gold ETFs, the largest of which is GLD. Gold ETFs have supplanted demand for physical gold in the west.
Top Gold ETFs and Close Ended Funds
Some commentators claim Gold ETFs have assisted in the manipulation of gold as they provide access to large amounts of physical gold to bullion banks who act as custodians to the largest gold ETFs. The custodian of the largest gold ETF, SPDR’s Gold Shares (GLD) is bullion bank HSBC Bank plc. The custodian of the second largest gold ETF, ishares Gold (IAU) is JPMorgan Chase.
Bullion banks are among the largest gold traders on Comex. With massive amounts of gold under their control the potential for gold leasing from the ETFs exists.
Gold Held in ETFs vs. Gold Delivered on the Shanghai Gold Exchange
While ETFs have managed to scoop up large amounts of physical gold bullion by shifting investor demand away from physical delivery, gold in ETFS is dwarfed by the amount of gold delivered last year on the Shanghai Gold Exchange.
American Gold Eagle Sales vs. GLD Holdings
Sales of American Gold Eagles over the time period that GLD has been in existence (2004-2015) are 67% lower than the amount of gold held in GLD. At its peak in 2013, GLD had over 1,000 tons of gold.
Gold ETF Holdings 2010-2015
Gold held in ETFs has been on a steady decline since early 2013. In recent months, however, holdings have ticked up.
Gold ETF Holdings 1994-2015
In this chart you can see the sharp rise in gold ETF holdings from 2005-2013 and decline since then, until recently.
Updated March 30, 2016
Next up: Silver ETFs.