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Got Gold Report – ETF Investors Fancy Silver in 2010

By: Gene Arensberg

-- Posted 2 March, 2010 | | Discuss This Article - Comments:

Largest silver ETF shows consistent positive money flow regardless of price.  


HOUSTON – Precious metal exchange traded fund investors are showing a preference for silver over gold lately or at least we are seeing more buying than selling pressure in the silver ETFs while gold ETF money flow is flat and has been for a year. 


We think it could be pointing to an opportunity looking ahead and we’ll begin making the case for why in this offering of the Got Gold Report. 


We’ll have much more below, but first, here’s this week’s closing table:


February 26, 2010





Got Gold Report Indicator Comparison

This Week

Prior Week


w/w Chg %

Gold Weekly Close (USD)





Silver Weekly Close (USD)





GLD Metal Holdings (Tonnes)





SLV Metal Holdings (Tonnes)





Gold Close COT Date





Silver Close COT Date 





Gold LCNS (Contracts Net Short)





Silver LCNS (Contracts Net Short)










US Dollar Index Weekly Close





ICE Commercial Net $ Pos. (Contracts)





Gold:Silver Ratio Weekly Close





Gold Intra-week High





Gold Intra-week Low





Silver Intra-week High





Silver Intra-week Low





Gold High/Low Spread





Silver High/Low Spread






This Week’s Bottom Line Summary (in bold)


We remain long gold and silver. 


We laid out the reasoning for reentry into the gold market in our last report two weeks ago, so we won’t repeat it again this week.   Below is a briefer-than-normal synopsis of what we are looking at this week.  (No applause necessary!) 




We still note only minimal reductions of metal holdings in gold ETFs, but we once again call attention to more buying pressure than selling pressure for silver ETFs over the past week below in the Silver ETF section.     


Mining shares more or less tracked with gold; the ICE commercials remain hugely short the buck; we think we saw significant commercial short covering in gold and silver futures late week and it looks like the COMEX commercials attempted to sell down gold and silver to start the week, but may have changed their collective minds.


Once again we reiterate our longer-term view that the world will most likely continue down a path of fiat currency debasement, weakening confidence in all fiat currencies.  We see the setup as long-term very bullish for gold metal and extraordinarily bullish for silver looking well ahead – if the world “holds it more or less together.”   


Readers won’t want to miss this week’s Gold and Silver ETF sections.  They are this week’s primary focus and they are up to bat next.   





Gold ETFs:  SPDR Gold Shares (GLD), by far the largest gold exchange traded fund, reported a very small reduction of 0.61 tonnes to 1,106.99 tonnes of gold bars held by a custodian in London.  As of the Friday, February 26 close, GLD’s metal holdings were worth USD $39.4 billion.  


The chart just below shows GLD’s metal holdings relative to the price of gold for about the last year.



Source for data SPDR Gold Shares. 


It kind of resembles a technical triangular consolidation, doesn’t it?  Putting the last year of GLD metal holdings in context, the next chart goes back four years to February of 2006.




It’s interesting to see the latest consolidation in context over that 4-year period, isn’t it?  As gold metal increased from roughly the USD $560s to as high as the $1200s or roughly 114%, GLD’s allocated gold metal holdings increased from roughly 330 tonnes to about 1,100 tonnes or an increase of roughly 233%.


Notice, however, that all or most all of the increases in metal holdings for GLD occurred by March of 2009 with gold at or below the $950s.  (For reference, GLD first reported holding more than 1,100 tonnes on March 19, 2009 when it reported 1,103.29 tonnes with gold then trading at $956.50).  Since then, and taking a rather broad view, buying and selling pressure for shares of the gold ETF have been more or less balanced as reflected in a much narrower range of metal additions and reductions.  (For reference, since March 19, 2009 GLD shows a low of 1,061.83 tonnes on September 1, 2009 and a high of 1,134.03 tonnes on June 2, 2009 – a range of just 72.2 tonnes. 


We want to call attention to the very substantial difference in recent metal holdings level for the largest gold ETF and the largest silver ETF below in the Silver ETF section.  We believe it may be pointing to an opportunity as investors are converting gold ETFs into silver ETFs at the margin, perhaps taking advantage of higher gold/silver ratios.       


iShares COMEX Gold Trust (IAU), reported a reduction of 0.76 tonnes to show 76.68 tonnes of gold held in COMEX warehouses.


All five of the gold ETFs sponsored by the World Gold Council (WGC) collectively recorded a very small decline of 1.68 tonnes of gold metal, to a combined 1,293.44 tonnes (41,585,270 ounces) worth about $46.1 billion USD as of Friday’s close.


The authorized market participants for gold ETFs add gold (and increase the number of shares in the trading float) in response to more buying pressure than selling pressure and vice versa.


Although we continue to see very marginal negative money flow for gold ETFs, it is neither material nor volatile, suggesting that investors are holding their gold ETFs through gold price volatility.  The recent minor negative money flow for gold ETFs is somewhat offset by continued positive money flow into silver ETFs as discussed just below. 


What we do have to note for the present, however, is that there has not been material positive money flow for the largest gold ETF for about a year now.  We expect that to change in the near future as this higher price region for gold is further digested and accepted by the collective global market. We will hold to that view unless and until we see material and consistent negative money flow for the world’s only real substitute for a gold-backed international “currency,” which gold ETFs have now apparently become.


Although anything is possible over the short term, we seriously doubt that investors will gain substantially more confidence in the world’s ailing, debt-strangled, policy abused and overly inflated fiat paper promises – or that investors will suddenly lose confidence in the only universally accepted store of wealth and value for over four millennia. 


When even central banks are net buyers of gold and the coy Chinese are surreptitiously adding to their gold stockpiles as they reduce exposure to U.S. debt by the tens of billions … well, let’s just say an exodus of wealth from gold doesn’t seem very likely looking well ahead.              


Silver ETFs: Metal holdings for BlackRock’s  iShares Silver Trust (SLV) increased by 30.51 tonnes to a reported 9,476.91 tonnes of average 1,000-ounce allocated silver bar inventory for the week.  As of the Friday close the largest ETF silver hoard in the world (held by SLV) was worth $4.9 billion or about 10.7% of the value of the largest gold ETF.  (Please note, in our last report we erred in reporting that the SLV value was 12.1% of the value of GLD. It was 10.4% of GLD’s NAV as of the last report.  Apologies for the blunder.) 


The chart just below shows the changes in allocated silver metal holdings for SLV over about the last year.  Please compare this graph to the one-year version for GLD above. 


Source for data, iShares Silver Trust.


Like GLD, the authorized market participants for SLV add silver (and increase the number of shares in the trading float) in response to more buying pressure than selling pressure and vice versa.


In contrast to GLD, we note consistently more buying than selling pressure for the largest silver ETF over the past year, even as silver trended higher on balance.  


Below is a graph showing the additions of metal held for SLV since its April, 2006 inception – roughly the same period as the longer-term chart of GLD above for comparison.  



Believe it or not, silver is not far from unchanged since SLV got underway in 2006.  What HAS changed is that over 9,000 tonnes of the world’s available bar silver in London has been removed from the market over the period.  We are of the firm opinion that silver ETFs are closing in on a supply inflection point.  That’s also a subject for a future report.  


Clearly there has been consistently more buying than selling pressure for the world’s largest silver ETF with only minor pauses in investor accumulation since SLV first began trading four years ago.  That continued popularity is despite the brutal, panic rush to liquidity in Q3 of 2008 which is the dominant feature of the SLV trading record above.


We will have much more about this divergence in buying pressure between gold and more volatile silver ETFs in a future special report, but for now we would point out that as buying pressure for gold ETFs has been more or less balanced over the past year or so, there has been consistently more buying than selling pressure for the largest silver ETF as shown in the graphs above.  We also note that the gold/silver ratio (GSR) is still quite high historically speaking (see below) and some investors may be taking advantage of the higher GSR to convert some gold ETFs into silver ETFs. 


If we stand back from the day-to-day metals price battlefield for a minute and take a wide-angled view, so to speak, what might this divergence be hinting to us? 


Well, if we accept the theory that gold ETFs have become a substitute for and a haven from under-backed and brittle government fiat paper currencies (for at least some investors); if we subscribe to the notion that wealth is and will be seeking similar vehicles to securely ride out the contemporary tempest raging in the global Forex markets; when we consider that both silver and gold have historically been used and universally accepted in their absolute forms as a storehouse of wealth (money) since right after Day One; and then we add in what more and more people believe is the potential for scarcity in the amount of available physical silver looming just over the investing horizon, then it makes perfect sense that we have seen consistently more buying than selling pressure for the largest silver ETF even as gold ETFs have treaded water relatively speaking. 


In the simplest terms, investors want somewhere to park some of their wealth in something that is backed by something tangible and out of their country’s debased fiat paper unit of exchange.  The obvious conclusion is that investors see silver as a relative value compared to gold presently and it wouldn’t surprise us in the least if that were not only to continue, but to accelerate over time – if the world more or less holds it together. 


Moving on, Gold in U.S. dollar terms closed the week $1.71 (0.2%) lower than the previous Friday close, with a last Friday trade of $1,117.55 on the cash market.  The weekly high ($1,130.91 Monday) was slightly higher week/week, but the low ($1,088.72 Thursday) was slightly lower as shown in the closing table above.  Gold bears’ hopes for an “outside reversal” week evaporated Friday as late short covering ruled.


For whatever reason COMEX traders were more afraid to be short than long going into the weekend this week.  


We changed our bias for gold from neutral to cautiously bullish as of February 5 with gold in the $1,050s.  We have since raised trading stops up to no-loss levels in the $1,060s and should gold trade to and through the key $1,135 arena and hold that level our instinct would be to add to the trade and immediately raise our trading stops to at least the $1,090s.  Given the heightened level of uncertainty out there, we still want to allow for more than normal trade-stop volatility with this entry for now.  Please see the gold charts linked below for more technical commentary. 


Silver, which had been over-sold, posted a slightly higher high ($16.56 Monday) and a higher low ($15.64 Thursday) as shown in the closing table above. Silver closed the week close to its weekly high with a last trade Friday of $16.46 on the cash market, up 17 cents or 1% from the prior Friday close.  On Friday traders seemed even more afraid to go into the weekend short of silver as the abrupt price rise shows in the chart just below courtesy of  Please see the silver charts linked below for more technical commentary.



Friday’s short-covering price action taken in context with the really large drop in COMEX silver open interest (discussed below) had traders buzzing over the weekend.  We won’t repeat any of the rumors here, but suffice it to say that some of the more visceral comments (by seasoned traders) centered on a failed attempt by COMEX commercial traders to “break” silver just ahead of contract and options expiry on Tuesday, February 23 now being unwound – in a big hurry.


ICE Commercials Still Betting Against the Buck Big Time


As the U.S. dollar index rose a big 131 bps from 79.62 to 80.93 (on COT cutoff Tuesdays) ICE commercial traders actually reduced their nominal collective net short positioning by a small 475 contracts to show 41,395 contracts net short the DX.  However, the open interest fell 1,158 contracts at the same time, so the “ICECOMS” actually INCREASED their relative net short positioning from 70% to a staggeringly high 71.9% of all the open contracts on the ICE exchange.


Repeating from the prior report:  It pays to remember that when the dollar index is rising, it is a measure of one sick fiat currency advancing against a basket of ailing basket cases in the huge global fiat currency leper colony.


Sooner or later more global wealth should be seeking refuge from government fiat currency IOUs - certainly in the true safe haven of gold metal and less certainly but probably in silver also.


We’ve no idea why the ICE commercials are so determined in their net short positioning in the dollar index, but we are pretty sure of what it means.  The ICE commercials have apparently decided that the euro is not going into the fiat currency scrap heap just yet, and they seem just as convinced that the U.S. dollar’s rapid rise is objectionable. The U.S. dollar index chart, with additional commentary, is below in the charts section.


The Gold/Silver Ratio (GSR) is finally edging lower.   As of Friday, February 26, the GSR showed 67.9 ounces of silver to buy one ounce of gold metal.  That’s down 0.81 from the prior week and down fully 4.9 points from three weeks ago.  A falling GSR is usually a positive sign as it reflects increasing confidence or a decrease in investor anxiety.  The reverse is also generally true.   As a reminder, at a GSR of 70:1 or higher we believe that excess gold can be sold to buy silver provided one can effect the trade without injurious premium slippage.  At a GSR over 80:1 we will sell some gold and buy silver aggressively, as we believe that to be a rare opportunity. 


We are almost always encouraged when we see this ratio falling and welcome it with open arms.  See the short-term GSR chart below in the charts section.


Larger, more liquid and well-financed mining shares have more or less tracked with gold metal over the past week.  Please see more in the HUI index and HUI/Gold ratio charts below in the charts section.


Smaller, less liquid and more speculative miners and explorers such as those in the Canadian S&P/TSX Venture Index or CDNX also more or less tracked with the HUI.  Due to time constraints, we’ll move on to the next indicator.  Please see the CDNX and CDNX/HUI ratio graphs below in the charts section.


Gold COT Changes:  In the Tuesday 2/23 Commodities Futures Trading Commission (CFTC) commitments of traders report (COT) for gold metal the COMEX large commercial’s (LCs) collective combined net short positioning (LCNS) INCREASED a large 18,166 contracts or 8.3% from 219,878 to 238,044 contracts net short Tuesday to Tuesday as U.S. dollar spot gold FELL $15.81 or 1.4% from $1,119.31 to $1,103.50.  Curiously, the total open interest edged higher by 63 contracts to 466,572 contracts open.


Gold versus the nominal commercial net short positions as of the COT cutoff:



Source for data CFTC for COT, cash market for gold.


We are not certain, but this week’s unusually sharp increase in the LCNS on a decrease in the price of gold may have initially been corrective in nature following the overly large reductions of net short positioning in the several prior weeks.  Having said that, we were focused both Thursday and Friday (after the COT data cutoff) on action that has been consistent in the past with significant commercial short covering. 


Taken in isolation, an increase in the LCNS on a decrease for the metal is usually more bearish than bullish very short term.  Some traders believe that is suggestive of hedgers and short sellers becoming more confident in lower prices.  Some will even say the commercials are pressing or probing the price lower when we see the commercial net short positioning increasing as the commodity price falls.   


The chart above looks at just the nominal amount of commercial net short positioning.  The chart below compares the COMEX commercial net short position for gold with the total open interest (LCNS:TO).  That gives us a better idea of how the largest hedgers and short sellers are positioned relative to the rest of the COMEX traders. 


As measured against all COMEX open contracts, the relative commercial net short position rose sharply from 47.1% to 51% of all contracts open on the COMEX. 



Source for data CFTC for COT, cash market for gold.


We hasten to add here that all of the COT action in the above report occurred by Tuesday, February 23, and it would not be all that surprising to learn in the next COT report that some of this week’s LCNS increase has already been unwound. 


Silver COT:  As silver FELL 30 cents or 1.9% COT reporting Tuesday to Tuesday  (from $16.15 to $15.85 on the cash market), the large commercial COMEX silver traders (LCs) INCREASED their collective net short positioning (LCNS)  by 1,544 contracts or 4% from 38,226 to 39,770 contracts of net short exposure.  The total open interest FELL 2,790 contracts to 117,376 COMEX 5,000-ounce contracts open, after adding 1,573 contracts the week prior. 


Silver versus the nominal commercial net short positions as of the COT cutoff:



Source for base data CFTC for LCNS, London Silver Fix for silver from LBMA until 2-26-08 then cash market


For context, the chart below compares the silver LCNS to the total number of open contracts on the COMEX (LCNS:TO).  That gives us a better idea of how the commercials are positioned relative to all the COMEX traders.  With the commercials apparently selling more aggressively in the early part of the week (evidenced by an increase in commercial net short positioning on a decrease in the silver price), the relative commercial net short positioning rose from a low 31.8% to 33.9%.      



Source for base data CFTC for LCNS, London Silver Fix for silver from LBMA until 2-26-08 then cash market


For whatever reasons, the COMEX commercial traders were more aggressive on the sell side this past COT week than we would have expected (at least up to the Tuesday COT cutoff which coincided with March options expiry).  Perhaps the firmer action on both Thursday and Friday is suggestive of commercial seller’s remorse?  (A bit of an inside “joke” there.)


We’ll see about that going forward, but in the mean time traders are buzzing about an overly large drop in the open interest for silver futures late week.  Indeed, as of the February 23 COT report the CFTC reported the open interest for silver futures at 117,376 contracts.  As of Thursday, just two days later, the CME reports the total open interest had fallen to 108,504 contracts – a very big drop of 8,872 contracts.   


That occurred BEFORE Friday’s rally into the close, raising our interest by several notches. 


A week ago we moved our trading stops for silver up slightly to the middle $15s ($15.49 for cash silver, $15.19 on SLV, $15.49 on SIVR) as noted in the linked silver charts then.  We are content to hold that stop level for now, preferring to allow for a bit more volatility than normal.  We were impressed this week with the determined bidding which showed on silver both Wednesday and Thursday as silver probed the $15.60s. 


However, should silver trade upward through the key $16.70s level convincingly (and in concert with firming gold), we are likely to add to the trade then and to immediately raise our trading stops up to a level just under silver equivalent $16.00.  


Got Gold Report Charts


Below are few samples of the Got Gold Report (GGR) technical charts.  Gold Newsletter subscribers enjoy access to all GGR charts and all the GGR reports, commentary and trading ideas.


·         2-year weekly gold

·         2-year weekly silver

·         3-year weekly HUI

·         2-year weekly HUI:gold ratio

·         2-year weekly U.S. dollar index

·         3-year weekly CDNX index



That’s it from Houston this week.  Until next time, good luck, good trading and as always, MIND YOUR STOPS.  Got gold?  Got silver?  


The above contains opinion and commentary of the author.  Each person should study the issues carefully and, as always, make their own informed decisions.




A land developer, professional numismatist, self-taught bullion trader and investor since 1980, Gene Arensberg analyzes technical and fundamental developments in the precious metals markets.  In 2000 Gene started sharing his own market research with fellow traders and fund managers.  Those email reports evolved into his popular Got Gold Report, a biweekly look at important indicators for gold and silver published on the web.


Gene’s more in-depth market reports, insights and trading ideas are an added service for subscribers of the very popular Gold Newsletter (GNL).  GNL is edited and published by Jefferson, Louisiana based Jefferson Direct, Brien Lundin, President. Brien hosts the acclaimed New Orleans Investment Conference each year which has brought investors together with some of the best and most sought after financial experts and investment authorities in the world for over three decades.  For more information visit or New Orleans Investment Conferences.    


Please note:  This offering of the Got Gold Report was originally filed Sunday, February 28, and delivered to Gold Newsletter (GNL) subscribers shortly afterwards.  GNL subscribers enjoy access to all Got Gold Reports, technical charts, analysis and information, as well as Brien Lundin’s timely and actionable analysis of specific resource related companies.  For more information or to subscribe visit the Gold Newsletter home page.


Got Gold Report

Gene Arensberg

-- Posted 2 March, 2010 | | Discuss This Article - Comments:

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