Forgive me if this has been covered elsewhere but I couldn't find anything. What is the relationship between gold ETFs and the hard stuff? What part do ETFs play - if any - in the price of bullion? I can see how ETFs could be seen as a driver, but I could also see a situation where they disconnected, such as if/when confidence in ETFs were to fall while demand for real gold increases. Second question: if there are more gold IOUs in circulation than actual ounces behind them, which is what many people say, what might precipitate a crash in ETF values? I'm guessing that most ETF buyers know they're not necessarily backed by actual gold but hope their gamble pays off anyway. However, a moderate sell-off which revealed insufficient gold in reserve could easily turn ugly, couldn't it? Where would the gold price go then?
Based on human nature, I'd assume that at least some gold/silver backed funds will be shown as deficient in metal when a few extra metal withdrawals come at once. It only takes one scandal for all of the gold/silver funds to suddenly be seen with suspicion. That has to be suddenly bullish for physical metal. At that point, I wouldn't count on getting hold of metal, except at much higher prices. However, if someone has better information showing how safe the gold/silver funds are (ie with physical backing), please reveal this.
The goal of an ETF is to track the price of an underlying / a product, so that money can be sucked out that underlying market. Tracking means that the ETF share value moves with the price of the underlying. Without such price / share coupling, the ETF would be "reduced" to a zero sum market, where the gain of one shareholder implies the loss of another. Now, for that coupling, there are two methods. 1) buying / selling futures positions (so affecting the forward component within the spot price). That could be named as "virtual gold", it doesn't need any gold at all to influence the price. 2) buying from / selling to the cash market, meaning that the ETF has a stock of the underlying product (gold). This does need gold. The biggest ETF's (SPDR, IShares), are 2) This is the evolution of the amount gold in 2) year / tonnes / avg price that year / total fiat value based on avg price (so an approach of what they actually paid) 1997 0 $330.98 1998 0 $294.24 1999 0 $278.88 2000 0 $279.11 2001 0 $271.04 2002 3 $309.73 $0.030b 2003 39 $363.38 $0.456b 2004 133 $409.72 $1.752b 2005 208 $444.74 $2.974b 2006 260 $603.46 $5.044b 2007 253 $695.39 $5.656b 2008 321 $871.96 $8.999b 2009 617 $972.35 $19.288b 2010 367.7 $1224.53 $11.822b 2011 154.0 $1571.52 $4.951b 2012 279.1 $1668.98 $8.973b 2013 -915.9 2014 -183.6 2015 -128.3 They started to buy gold in 2002, and started to sell in 2013. Based on the avg prices and tonnes, they paid over 2002-2012: 69.945 billion dollars. And received over 2013-2014 47.47 billion dollars back. They sold so far 50% of the stock they accumulated. And have already back 68% of their dollars. There is a clear price correlation between gold ETFs and gold price. Meaning that they were a major price driver. Just like governments, just like coins & bars (stackers). That is also to expect, a derivative market needs an equally big underlying market. If you want enough milk, you need enough cows.
Well, these are the serial numbers of the 2 biggest gold ETF's stocks: SPDR: http://www.spdrgoldshares.com/assets/dynamic/GLD/file/barlist/Barlist.pdf IShares: https://ebts.jpmorgan.com/metalicsWebApp/ebts_downloads/BONY_IAU.pdf Beware, big pdf files, may hang browser on older pcs / software.
