GLD Signaling Gold Is Sold Out Again?

Extreme readings seem to indicate that gold has seen another important low, but as always with bottoms, you don't know for sure until after the fact.

The GLD gold ETF puked up 31 tonnes (or 2.48% of its bullion holdings) yesterday to bring its holdings down to 1,229 tonnes.

Now, a bullion puke of that size is interesting, because as we’ve noted before, one-day declines in the holdings of this ETF of over 1% have tended to be capitulatory in nature and have typically occurred near important lows in the gold price during gold’s secular bull market.

Consider that, since the GLD ETF’s creation back in 2004, it has seen 1%+ one-day declines in its bullion holdings only 41 other times. When one goes back and looks at where these declines in bullion holdings have occurred, virtually all of them occurred “at” or were “clustered at” important lows in the gold price.

When we update this familiar chart below of the GLD versus its bullion holdings for yesterday’s 1%+ decline in bullion holdings, we can once again see where I have labeled the past eleven 1%+ declines in the ETF’s bullion holdings (plus today’s decline) with red dots and then placed a corresponding white dot below the price of GLD in order to show where that decline (or clusters of declines, as was the case in 2008) occurred relative to the price of the GLD, which is obviously tied to spot gold.



You will recall that we most recently used this indicator back on July 29 (see Gold, Gold Equities Putting in Major Lows) in order to identify what was then the summer low in the gold price, and we used it again on October 8 (see GLD Already Hinting That Gold Is Sold Out?) to recognize that a sudden 1% slide in gold from an all-time high was actually a just a one-day setback that led to new all-time highs being hit once again just a few days later.

The pattern you see emerge after yesterday’s 1%+ puke, just as on those prior occasions, is that these “pukes” of bullion by the GLD ETF have always tended to occur at or very close to important lows in the gold price, and declines of over 2% like yesterday’s have only occurred at major lows, such as the two major lows that were hit in 2008.

Note that one of those lows on September 9, 2008, which is the closest in size to yesterday’s 2.48% puke, also occurred just one day before a five-day short squeeze/meltup of 30% in the gold price that kicked off on September 12, 2008.

Lastly, when we also add in the fact that COMEX open interest collapsed by a jaw-dropping 14% on Monday, it adds further support to the idea that the yellow metal saw a washout of sorts over the past two days.