Conclusions -

Gold ETFs sold much of their physical gold during the 2013 price rout. This is evident by the massive importation to China of more than the yearly available worldwide mine production. ETFs are not mines, cannot produce gold, and have source other than futures markets.

Now that the price rise necessitates that ETFs replenish supplies, they have to buy with their available cash along the futures curve and take delivery many years out, though they're claiming that this gold is already on the books.

That has increased the contango in gold, which is due to this forward skew, and has created a steepening flag continuation pattern in the daily chart. At the same time this formation was being roughed out, you have a widening of spreads.

With the narrowing of spreads towards backwardation again, the gold price aught to advance fairly aggressively, with higher volatility.

Mines are the yielding asset in the gold space, and yet people would rather buy an ETF which may only be holding a fistful of futures contracts. The importance of mines is grossly underestimated, while the irony is that ETFs can't take physical delivery, all the gold from their vaults sold and being shipped overseas.

-F6