Physical Gold Tight: LBMA May Pressure GLD Gold ETF To Make Physical Available
The comments below are an edited and abridged synopsis of an article by King World News
The physical gold market is extremely tight and it looks like the LBMA may pressure GLD, the gold ETF, to make physical gold available.
Gold and silver have consolidated their gains since September, with gold showing a continuing upward bias. Silver is tracking sideways.
Silver’s chart is interesting, because a rise in Open Interest of less than 14,000 contracts since November has led to a rise of 13.5% in the price. And with the gold:silver ratio at 81:2, there is substantial upside potential in the price.
The increase in gold since December has analysts claiming that gold is overbought short-term and is overdue a consolidation, but Open Interest shows that gold is still generally oversold.
While a move back down to a bullish golden cross at $1,810 cannot be ruled out, the momentum in gold is impressive, and selling in hope of buying back at lower prices is risky. The gold price is of derivative paper contracts, and it ignores underlying physical liquidity.
The January gold contract is regarded as a non-delivery month, yet 5,749 contracts have been stood for delivery, representing 574,900 ounces (17.9 tonnes). On a monthly basis, ETF demand declined in December, but the pace of decline has been slowing.
Anecdotal evidence shows that demand for physical bullion is absorbing supply. Central banks have been adding to their official reserves, and China reportedly bought between 250‑300 tonnes in November/December last year.
Before Russia was sanctioned, all its annual gold output of 330 tonnes was sold into London; that has now ceased. Russia is aggressively accumulating gold, and according to President Putin’s chief economist Sergey Glazyev, production is being ramped up to 500 tonnes. Glazyev says that in future Russia will settle its trade balances in gold, and expects all members, associates and dialog partners of the Shanghai Cooperation Organisation to do so as well. That is why these governments are building their bullion holdings.