Credit Suisse
FIXED INCOME RESEARCH & ANALYTICS
Research Notification
Is the Gold Market Misinterpreting Changes in ETF Positioning?
The SPDR® Gold Shares exchange traded fund (ticker GLD) is by far the largest ETF backed by physical gold. It is not surprising then that recent redemptions of shares in GLD have attracted a lot of attention and we believe have contributed significantly to a shift toward more bearish sentiment amongst sectors of the market.
However, rather than a move out of gold per se, we suggest that changes in GLD holdings, and the reduction seen in long-dated futures open interest in recent days, may instead represent a shift out of US exchange-based investment and into alternatives such as allocated bullion.
Details on changes in institutional holdings in GLD for Q4 2010 will become public on 14 February, while changes that occur during the current quarter will be published on 16 May. If the data confirm that one or more of the hedge funds with large positions in GLD have cut back their investment, then further significant corrections in the price and spikes in gold volatility around these dates are likely, offering good trading opportunities.
Before then, the physical demand we are seeing at present is unlikely to be sufficient to prevent another futures/ETF flush-out in the short term. However, we think that in that event it could present a great opportunity for longer-term investors to add to or rebuild their exposure at relatively cheap levels.
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