Gold ETFs are effectively shorting Gold

[68Camaro]

This may be a Simpson's "d-oh" moment for many but I just realized something, and if I was slow to understand maybe others are as well?

Whether intentional or not (it could be that they just can't buy enough to keep up with demand), I just had an epiphany when I looked at a Goldman Sachs chart of physical gold for ETFs in 2025. The amount of physical gold they are holding is NOT keeping up with the price of gold, therefore the percentage of physical gold backing the paper is shrinking, which is effectively a type of short.

This is not a precise measure, but for convenience I have grabbed a 6 month gold chart and an 8 month ETF chart, even though they are 2 months different in span, because that was what was immediately easy to grab. First, the ETF chart - you can see that the ETFs have increased their holdings between Feb and Oct from just below 2600 tons to just below 3000 tons - that's a 400 ton increase over a 2600 ton base, or just over a 15% increase in gold holdings:

ETF Gold 2025.jpg (37.23 KiB) Viewed 131 times

Over the past 6 months (not 8 months), the spot price of gold has gone up from 2983 to 4045 (as of today), a $1062 per oz difference, which is a 35% increase in spot. See below. A one-year gold chart shows the spot at the beginning of Feb was about 2800, for a 1245 per oz increase in spot - a 44% increase:

six month gold.gif (7.02 KiB) Viewed 131 times

If the physical holdings go up 15% but the unit value of the ETF has increased 44%, the "fractional reserves" of these ETFs are dropping - so the issuers are essentially shorting the fund, and making it more likely that the fund has issues. In contrast, fully physical funds like PHYS have no issues because they are 100% covered, and they only issue new paper when they buy physical gold to cover it.

[JerrySpringer]

Would GLD be one of the ETFs swimming in the water without trunks when the tide goes out?

[68Camaro]

Would GLD be one of the ETFs swimming in the water without trunks when the tide goes out?

There may be a small other exception that I can't name, but I believe all PM ETFs other than those run by Sprott (Phys, Pslv, CEF) are "fractional reserve" with only a portion of deposits covered by physical.

[68Camaro]

If my math is right, the ETFs shortage of physical metal has increased by $95B just since February.

[Lemon Thrower]

Another reason to get 21st century gold

[68Camaro]

Another reason to get 21st century gold

Ha! 21st century gold is the same gold as the gold of the prior 50 centuries. As we know, virtually all gold that has ever been mined is still in play. If you want electronic gold or silver, choose PHYS, PSLV, or CEF - all 100% backed by physical.

[Catfish4u]

Another reason to get 21st century gold

What is '21st century gold' backed with? What 'fraction' is that backing?

[Catfish4u]

Those 'leveraged ETF's' are just fine as long as a lot of new money is coming in. When people start trying to "cash in" there will be huge problems! DON'T be one of the last ones to cash in! Kind of like musical chairs with 'fewer chairs'!

[Lemon Thrower]

Another reason to get 21st century gold

What is '21st century gold' backed with? What 'fraction' is that backing?

the largest computer network in the solar system

[JerrySpringer]

Would GLD be one of the ETFs swimming in the water without trunks when the tide goes out?

There may be a small other exception that I can't name, but I believe all PM ETFs other than those run by Sprott (Phys, Pslv, CEF) are "fractional reserve" with only a portion of deposits covered by physical.

cool cool. I trade PSLV in my IRA. No way I can do that with physical silver. I take my chances if the ETF market for gold and silver blows up due to paper being backed by.....nothing.