GLD Ishares And Gold Futures

Reuters reports that SPDR Gold Trust holdings steady at 1,109.81 T.

SPDR Gold Trust holdings steady at 1,109.81 T
Fri Jul 10, 2009 4:22am IST

TOKYO, July 10 (Reuters) - The world's largest gold-backed exchange-traded fund, the SPDR Gold Trust GLD, said holdings stood at 1,109.81 tonnes as of July 9, unchanged from the previous business day.
Following are changes in SPDR holdings;

Date: Total tonnes

July 8 1,109.81
July 6 1,120.19
June 30 1,120.55
June 25 1,125.74
June 22 1,131.24
June 5 1,132.15
June 3 1,132.50
June 1 1,134.03 -- record
May 22 1,118.76
May 13 1,105.62
May 6 1,104.09
April 23 1,104.45
April 17 1,105.98

As of Wednesday, there was open interest on COMEX gold of 370497 contracts, which translates as 1050 tons.

Now, everyone knows that the shares of securities in margin accounts, including GLD, can be lent by broker-dealers to short sellers, right? Not that many shares of GLD have been borrowed for this purpose. reports GLD short interest data.

SPDR Gold Trust ETF

Short Interest Date: Jun 25 2009

Short Interest Shares: 5,108,418

Short Interest Ratio: 0.4

Float: n/a

Short Interest as a % of Float: n/a

Average Daily Volume: 15,291,300

Outstanding Shares: 190,400,000

Looking at this data, it would appear only 0.4% of GLD shares have been borrowed from brokers and shorted on stock exchanges. But what if more shares than GLD shares were being borrowed and sold somewhere else?

As I highlighted on Tuesday, GLD ishares are used to sell gold futures.

GLD is used to sell gold futures

To add insult to injury, GLD ishares are used to sell gold futures and drive down the price of gold. Investor Village explains about this practice:

bullion separately may be deposited and redeemed by "Authorized Participants" for Ishares that never even reached the Retail Market. There is no trust requirement for an Authorized Participant (read specified Bullion Banks and most likely friends) to even sell the ishares (GLD) (received on deposit) into the Ishare market. The Prospectus specifically states that.

Significantly, the depositors ("Authorized Participants") have the alternative of using the Ishares (GLD) as collateral for setting up a spread at the COMEX, by selling Gold futures short against the Ishares they hold.

Consider this:

1) Wall Street institutions ("Authorized Participants") can use Ishares (GLD) as collateral for selling Gold futures.
2) Wall Street institutions can borrow Ishares (GLD) from any margin account.

This leads to interesting questions:

If a large portion of the 1,110 tons of GLD Ishares outstanding had been borrowed and used to sell gold futures, would there be any way to know about it? Are there any published statistics which would capture these borrowed shares?

How much of the 1050 tons of COMEX gold open interest is backed by borrowed GLD Ishares?

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5 Responses to GLD Ishares And Gold Futures

  1. Robert says:

    Noone has yet answered my question from the last article;

    Are people being given GLD shares as settlement when they try to take delviery of their COMEX contracts?

    If so, why haven't they complained about it?

    If not - while the GLD shares may well be the mechanism that "legalizes" otherwise naked short selling on the COMEX - presumably everyone taking physical delivery is still depleting the comex warehouses.. am i wrong?

  2. Anonymous says:

    You better be careful Eric or one of da boyz will do a hit piece on you where they dig up some clever baseball analogy and prove you struck out before the game even started. Then they'll congratulate themselves on how they put you in your place and go out to the nearest bar for some action.

    Or at least that's what they did to Charleston Voice when he dared to infer the silver wasn't all there in SLV.

  3. Anonymous says:

    Dear Robert,

    I'll humbly attempt to answer your questions.

    1) Are people being given GLD shares as settlement when they try to take delviery of their COMEX contracts?

    Perhaps. I personally believe so.

    Please see this link: ( ) on Page 4, there is a link to a COMEX report from 8th July. There, it reports that EFP transactions account for 9540 contracts of COMEX settlement.

    Whilst only 17 contracts were settled via the delivery notice mechanism. This fact, would suggest that, YES, people are being given GLD shares as settlement, since EFP settlements via COMEX rule 104.36 allows for such ways of settling contracts. And since EFP's are orders of magnitude larger than delivery notices, then YES, this is the way that a majority of COMEX contracts are being settled now.

    2) If so, why haven't they complained about it?

    What is there to complain about? Read COMEX rule 104.36 again (see above link). If you want to buy COMEX contracts, you have to abide by the rules. If the rules stipulates that contracts can be settled in 2 ways: delivery notices & EFP's, then the buyer & seller are abiding by the rules by using one of these 2 methods. The numbers above suggest that buyers are more than happy to settle in this fashion, since EFP's out number delivery notices by more than 800 times.

    Do I agree with this? No, I don't. However, it is all "legal" in the eyes of the COMEX rules. Therefore there's nothing to complain about. Only those with the cajones & perserverance will stand to take delivery of physical and not get side tracked into settling any other way. However, to let you know how difficult this is, even one of my brokers here down under, does not have the cajones to represent me to take physical delivery even if I offered 94,000 bucks to do it. When I brought this up in conversation, he swerved, avoided, and did everything to not talk about taking delivery of COMEX gold. He used every argument in the book. And that's just here. There are anecdotal accounts of extreme difficulty for US citizens as well. So, it is not easy to take delivery. Its possible, but not easy.

    3) If not - while the GLD shares may well be the mechanism that "legalizes" otherwise naked short selling on the COMEX - presumably everyone taking physical delivery is still depleting the comex warehouses.. am i wrong?

    What do you mean by "everyone"? Look at the numbers. 17 contracts via "delivery notices", and a whopping 9540 contracts via EFP's from 8th July. What does this say? Not everyone is taking physical delivery via the front door method of "delivery notices". Most are using EFP's. If there's any depletion, it will be done via the back door methods, not a front door method such as "delivery notices". What do you think that recent talk between Angela Merkel & Obama was all about, after Germany grumbled about bringing their gold home back to Germany? I reckon that the back door method is being nullified, where possible.

    Anyways, I hope I've helped.

    Kind regards.

  4. Robert says:

    Thanks very much Anonymous.. very informative indeed.

  5. Anonymous says:

    . .

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