Gold And Silver ETFs Show Modest Decline In Holdings

The holdings of the iShares Silver Trust (SLV) declined slightly on the week by 53.10 tonnes as silver prices continued to consolidate after the sharp sell off of early May.

Since the beginning of the year, holdings have declined by 434.19 tonnes to the current level of 10,540.48 tonnes.  The all time record holdings of the SLV were 11,390.06 tonnes on April 25th, as the price of silver was approaching the $50 per ounce level.

Even after the early May pullback, silver has rewarded investors with a gain of 29.7% from the January low of $26.68.  The SLV has delivered a total return of 115.4% over the past year, and an average 25.8% yearly return since its inception in April 2006.

Despite the downturn in ETF holdings, there is strong evidence of continued strong fundamental demand for silver:

• The U.S. Mint continues to ration sales of silver bullion coins, as total production cannot meet full market demand. This has led to higher premiums for American Silver Eagles and the newly introduced America the Beautiful Silver Bullion coins.
• Dealers are reporting continued high demand for silver bullion as an increased number of new investors seek to protect their wealth by diversifying out of paper currency and existing investors use the reduced prices to increase holdings.
• Investor demand for physical gold and silver is growing dramatically in countries such as India.  According to the Financial Times, silver traders in India report that “People are booking incredible amounts of Silver as they see the current drop in prices as a great opportunity to buy more…most are buying for pure investment.”

Meanwhile, the cheap money policies of the Federal Reserve are not likely to change any time soon.  Minutes of the last Fed meeting on April 27-28th, indicate that the Fed extensively discussed an exit strategy from its easy money policies but provided no guidance on timing.  Most analysts have concluded that it may be years before the Fed actually starts to tighten monetary policy.

GLD and SLV Holdings (metric tonnes)

Holdings in the SPDR Gold Shares Trust (GLD) declined slightly on the week by 9.7 tonnes.  It was disclosed this week that investor George Soros sold 4.7 million shares of the GLD during the first quarter, bringing his holdings down to a token 49,400 shares.  The liquidated shares were valued at $684 million based on today’s closing price of the GLD.  The 4.7 million shares of GLD represented only approximately 15 tonnes of gold or 1.2% of total GLD holdings.

Was Soros turning negative on gold, as suggested by the media, or was Soros simply taking some short term profits?  While Soros was selling, legendary hedge fund manager John Paulson did not reduce his massive stake of $4.4 billion in the GLD.  Although Soros has a great long term track record, during the financial panic of 2007-2008, he bought Countrywide and Lehman Brothers shortly before they collapsed.  Perhaps history will repeat and the sale of gold by Soros will mark a major bottom in the gold market.

The long term uptrend in gold is still intact and supported by the fundamentals (see Insights From A Legendary Gold Investor).   Since the SPDR Gold Shares inception date of November 12, 2004, the fund has had a spectacular annual average return of 19.6%.  The GLD currently holds 38.3 million ounces of gold valued at $57.3 billion.