Sprott's Thoughts: A Piece of the Gold Puzzle Falls into Place

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David Franklin

 

2013 has been the year that China has lit the physical gold market on fire; however you would never know from the metal’s price performance. While the price of gold has fallen more than 20%, bullion flow to the East has been nothing short of spectacular. Recently published data supports our presumption that physical gold was indeed flowing from ETF liquidations with a significant amount heading East.

We have written much this year on the gold market and the flow of the yellow metal to China. A quick review of the titles of our missives highlights our fascination with gold market developments over the past year. Many of these articles outline the massive shift in the gold trade from West to East. But it was in our piece entitled “Redemptions in the GLD are, oddly enough, Bullish for Gold” where we first postulated that elevated premiums for gold in China, the so-called ‘Shanghai premium’, were driving redemptions in the world’s largest gold ETF with the physical gold being used to satiate Asian demand. We asked the question in July, when we wondered what the link between China’s increasing physical gold deliveries and the drop in gold inventories within the COMEX and GLD ETF was, but any proof remained elusive.

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