Note that the SPDR Gold Shares (GLD) ETF’s bullion holdings collapsed over 18 tonnes (1.43%) to just over 1,282 tonnes yesterday.
Now, some might view that decline in bullion holdings as bearish, but as I’ve noted before, the historical record would argue that the opposite is true.
Just as we used to see large mutual-fund redemptions by the public on lows in the stock market back during its secular bull market, one-day declines in this ETF’s holdings of over 1% have tended to be capitulatory in nature and have occurred near important lows in the gold price during gold’s secular bull market.
Consider that since the GLD ETF’s creation back in 2004, it has only seen 1%+ one-day declines in its bullion holdings 39 times. When one goes back and looks at where these declines in bullion holdings have occurred, virtually all of them occurred at or were clustered at important lows in the gold price.
In the following chart of the GLD versus its bullion holdings, I've labeled the past 10 1%+ declines in the ETF’s bullion holdings with red dots and then placed a corresponding white dot below the price of the GLD to show where that decline (or cluster of declines, as was the case in 2008) occurred relative to the price of the GLD, which is obviously tied to spot gold.
The pattern you see emerge is that other than the December 8, 2009 decline in bullion holdings of over 1%, which occurred just days off of the December 3, 2009 peak, these “pukes” of bullion by the GLD ETF have always tended to occur after declines in the gold price have been underway for some time and have also tended to occur at or very close to important lows in the price of gold.
When we combine this information with
1. the increasing probability that the Fed will be forced to begin printing money once again, which is something the forex market incidentally already seems to realize given that the dollar seems to fall every single day since early June,
2. the high level of bearish sentiment in gold that has suddenly spiked over the past four weeks leading to a collapse in the HGNSI to just 9.2% and a collapse in Market Vane’s Bullish Consensus to just 61%, and
3. the proximity of the end of gold’s seasonally weak period that spans most of the summer until early August
there’s more than enough reasons to believe that we're seeing both gold and the gold equities put in major lows this week, which should set up a big rally this fall on the back of more Fed money printing during gold’s seasonally strong period, or what I like to call “magic hour.”
