A different view of GLD (part 1 of 4)

GM has charts sewn up nicely, but in the land of the bar list, what's new? Everyone knows about the decline in GLD inventory but not much attention is given to increases in inventory, so let's talk about it some. There were only three 'Add Events' in GLD during June 2013, with the largest add (214 bars) on the 13th June. In my bid to make the information more digestible, here is the summary as a handy info-graphic (yeah, I've got a new version of photoshop):

The most interesting day was the 13th June add, which had 74% dark bullion, which was neatly 160 bars. If you recall the pictures of the GLD vault from the Bob Pisani visit, that is basically two pallets exactly. The surprising element is not that the bars appeared to have traveled together, but the fact that the returning bars were only absent for about 14 days. We're still experimenting with different ways to slice and dice this data to help improve the utility of this new metric. A few weeks ago we looked at all the dark bullion being returned during an 'Add Event' and analyzed how long the bullion had been absent. In rough figures, here is the breakdown (by percent) of bars affected by the dark bullion effect we have seen, for the last two years:

Sample size is: 13,453 'dark bullion add events' (individual bars).
(Repeating dark bullion bars treated as separated events).

Basically, the chart suggests that the chance of a bar returning to the GLD bar list once it has been removed, diminishes over time - or more precisely, that 85% of any bars which are returned to the inventory, do so before 90 days are up. If historical patterns hold, most of the gold which has been removed in 2013, is not coming back. However, do bear in mind this graph will change as soon as we see a sustained period of inventory being added back to GLD (yes, it may still happen).

Riveting! Anyway, I have set myself the task of providing at least four different views of the GLD inventory. The aim is to show the inventory in ways not previously seen (i.e. unique to Screwtape Files), using different aspects of the 472 source documents we have for gold, as a form of edutainment. Here is the first view.

Something I have always wanted to do is identify how much of the stock in an ETF never moves. If you have a big enough space full of lots of the same thing - a vault or a supermarket, then you'll know how easy it is for some items to sit in the corner untouched for long periods of time. The local grocer has strategies for ensuring that stock always rotates since a use-by-date applies, but bullion doesn't have quite the same limitation in fact there is an advantage in not moving it at all. If we wanted to get conspiratorial then we might speculate the evil banksters have a motive for not moving said gold ... 'because it's all fake right?'. Well in a world full of wonders this possibility still provides a vector for investigation. Basically the question is - is there anything particularly special or different about the gold which gets added and removed vs. the stuff which remains consistently untouched?

Loosely put, this question arises from Bix Wier's suggestions of the ETF inventory being fake*, on the premise that if the stuff just sits in the vault un-inspected then it's easier to hide fraud, so let's take a look. Here is a view of the bars in GLD which have been present since our first records first begin (in October 2009), and which are still there today. For the graph below, the database query requirement is the signature for every bar** in the yellow section must be present in all 472 bar list issues.

So although there are bars which have never moved in the last 3 years, there is also a substantial amount of bullion which has moved in some fashion, whether this is being added, removed or even had their weights or serial numbers adjusted. Moving the metal or handling it to enable reclassification, increases the likelihood any fake bars would be exposed. This doesn't eliminate his argument but it does set a valid starting point for further investigation***. Please also note that a bar disappearing from the GLD bar list does not necessarily mean it moved from the vault but certainly did mean that it changed ownership, and we might presume the new owner is satisfied in some fashion that the bar is not fake.

Finally, this line does not represent some sort of magical limit, as the graph appears to suggest - it's simply an artifact of our availability/choice of data points. If the withdrawals continue then that lower bound will just get lower and lower, as the number of bars with 100% presence gets reduced. Likewise if we had a bar list from 2007 (we don't) and drew the line from there then it would also be lower. Gold bars which are present at Section B, were ones which were not present originally at Section A, so they were added at some point over the years. An astute analyst might ask whether we can track the churn for bars (i.e. the nature of the graph means that the bars present in Section A, are all absent by the time we get to point B). Can we see when they disappeared? Yes, we can, but you'll have to wait until Part 2 when we look at 'Snapshots' of individual bar groups.

Until next time,
Warren James

If I had a cool name like that, I would launch my own cereal brand.

* I first came across the 'road to roota' stuff in 2009. He has views on Molybdenum as fake silver and Tungsten as fake gold. He also conveniently ignores all the commercial and historical agreements which got the bullion there in the first place. Please note that I'm not attacking Bix with my article and my weeta-bix graphic is a visual gag that I've had in my head for quite a few years.
** The matches are done using bar signatures, a unique combination of BarSerialNumber, Refiner, Fineness and Weight.
*** I still have hopes that we can find (and prove) unscrupulous bullion bank behavior using the data, but so far it has not been found in the bars data. Frameworks like these are a good start.


Bron Suchecki said...

85% before 90 days and 24.1moz prsent in every bar list points to a lot of bars sitting up the back of a vault that the vault guys just want leave alone to minimise their work.

I think a Weir Bix cereal would have zero nutritional value.

AdvocatusDiaboli said...

maybe somebody asked or pointed out before, just wondering:
Could those bar appearances maybe also be related/effected to the geographical position/location of the different vaults where the different bars are at (added/removed)?
Are there information which bar is stored/added/removed at which vault?
Does it matter or doesnt it?
Just wondering, thoughts?
Greets, AD

Warren James said...

Hi AD, those are good questions. The short answer is that there's no information like that and the best we can do is put together clues. From our information we do now see that bars tend to travel together in blocks (e.g. one pallet of 80 bars), and that the selection for removal/adding is also performed on a pallet basis.

Yes, I think you're right - the 'dark duration' figures above do give a sense of the flow inside the vault, in the sense that those bars must be the 'accessible ones' vs. the 'hard to get at' bars as Bron notes above. but it's still only a blurry picture.

I'm increasingly of the opinion that tracking the movements doesn't matter and I am probably wasting my time except it's very nice to see normal 'vault operation' distribution patterns. One would think that if the bars were not really present they would not go to so much trouble (to include all these details). That has a lot of value to me and it's one of the reasons I'm sharing it.

Some of the other studies (part 3 and 4) will look at the block-based movements and hopefully give a really good view of how the bullion is arranged. What I'm really keen to see is a feel for the churn going on with the removals - e.g. are they removing 'deep' bars or just the ones which were added most recently? The goal is to get a sense of different 'removal types' and then see if there is any price correlation (yes, still hunting). Regards, Warren

AdvocatusDiaboli said...

I am trying to imagine how the bars are handled in real life. Like Bron suggests that the dude is lazy and only graps the first bars he gets his hands on in the vault.... ;)
This is kind of hard for me to imagine, that the bars are physically handled at all anyway, except somebody really wants it to refine it into some retail product. Until then, why handle them physically, but rather exchange ownership virtually, while they never move physically? (I guess this is also what your dark bullions would suggest?)
GLD says that the bullion is held at the custodian HSBC USA, London or in the vaults of sub-custodians.
Hmmmm, lots of different places....
BTW does somebody have a list of all those "sub-custodians"?
And maybe some of these places have more physical entries/exits than other (maybe because located at a refiner instead of some deep storage in Switzerland?)
Greets, AD

milamber said...


As usual, great work.

Quick question for you:

Will there be any way to ascertain who, where & why the gold in GLD came from when it was first set up?

IE did the WGC wake up one day and say,

"Hey guys. We got a tremendous amount of unallocated physical just sitting around w/o an owner (and even more mining & scrap supply coming online over the next decade)and we want to churn an income on it through the selling of partial ownership shares via a new thing called an ETF"

Or did the LBMA wake up one day and say,

"HOLY CRAP! 97-99 nearly blew us out of the water. We were saved by Gordon (like what else was he going to do), but as we all know, the end is near. However, we have to do something so that we (collectively) know where all the remaining unallocated bullion is so that we don't screw ourselves as this puppy goes down sometime over the next decade.

So, let’s pool all the remaining unallocated into one central repository and to satisfy the western investor’s demands for “gold” exposure, let’s sell it as a paper investment that is easy to get in and out of, well until we wind it down that is :)

We’ll go with this new thing the quants down the hall came up with (The nerds call it an ETF). No, John, not a CDO (please try and keep up. The CDO's will include MBS's and that will be part of the subprime dump.Fannie and Freddie backstop 90% of the mortgage market so you know they will get saved. And anyways, Angelo has the corner on that, doesn’t he? Plus, he aint in the LBMA, so screw him too!”

Or is that wishful thinking to believe that the data will be able to show how it did come about?

Again, kudos!


Gary Morgan said...

'Or is that wishful thinking'

Is that a rhetorical question?

Bron Suchecki said...

"BTW does somebody have a list of all those "sub-custodians"?"

My understanding is that the sub-custodians are primarily the security carrier companies. That is, the inclusion of sub-custodians was to cover in-transit movements and temporary holdings of metal. It is not meant that the ETF metal is held all over the place.

Milamber - the reality is more mundane. See my comments on the WGC's involvement in the ETF here http://goldchat.blogspot.com.au/search?q=wgc+gld

Warren James said...

@Milamber, unfortunately no - the data can't tell us that level of information. However attaching an approximate 'age' to the bars will reveal another level of interpretation. Basically what Bron said.

As we dig deeper into 'what is gld from an inventory perspective' I fear it is becoming very boring (which is essentially what Bron and AD are pointing out above), and all of the juicy conspiracies I once hoped to find, are becoming more distant.

I've never been able to figure out the sub-custodian or physical vault layout from the data, but I think the picture is slowly emerging. Part of our problem is that we don't have every single historical bar list, but the data does appear to be layered somewhat (at least from when HSBC took it over) so we can glean some clues from that. I do know that Bank of England is a sub-custodian and I suspect this is where the decades-old bars are (and will probably stay). Most of the bars we see being 'removed' or 'added' are reasonably recently refined. Again this tallies with what Bron describes (back of the vault).

But also to give a better perspective on your question (although it's not answerable), we do know that the gold comes from considerable other reserves which are 'somewhere'. Sometimes when bars get added, they are bars which have been poured many years ago (cold new bullion) so there appear to be repositories several times larger than GLD that we don't have ANY visibility to. Hope that helps.

milamber said...


Thanks, Yes that does help. At least it helps in understanding that it is probably impossible to determine with any level of accuracy what percentage of unallocated gold (in size) is available for purchase at spot.

As I have mentioned in the past, my quandary is that I believe Bron & that he is honestly reporting what he sees at the Perth mint. But I also believe that ANOTHER was honestly reporting what he was seeing.

And yet (on first glance) the two views don't seem to line up together. Thus the considerable room for debate.

I look forward to the remaining posts on the dark bullion.

Thanks again.


Warren James said...

Hey Milamber, those are good observations - it is certainly an interesting situation where each party is describing the industry in the context of their best understanding, and where those observations conflict - the only logical explanation is that some pieces of the puzzle are still missing by one or more party.

I very much apologize, but your comment above which was 95% FOFOA related, was relocated to the 'Freegold Discussion' page.

For what it's worth, the discrepancy between the different market interpretations of GLD withdrawals would make a very good discussion - if you want us to host it here I'm more than happy to give you 'Author' privileges, then at least there can be a dedicated spot for it.

The process of writing is a great tool for articulating and refining your own set of research ideas as well as garnering feedback. Collectively we're all a bit jumpy from recent events, but there is no problem when the article is specifically dedicated to the topic.

Let me know if you're interested :)

S Roche said...

"Cold Gold"...I like it!

In respect of London volume that the 2011 LBMA survey revealed, I remember being amazed at the volume of settlements during the 1990s, they dwarfed anything since. So, I am not surprised that there are caches many multiples the size of GLD quietly sitting cold in the dark...waiting for what? Future generations of Arab SWF directors, to use as collateral, to sell in times of need?

Btw, 1M GOFO dropped to 0.015% on Friday, if it goes negative then expect fireworks...Victor figures that more paper will be created or GLD will be raided but I am thinking that those options were available in 2008 and yet 1M GOFO went negative Nov 20/21, 4 weeks after the low...but, if Victor is right then maybe it doesn't go negative ... yet.

ps, A matter of house-keeping: I apologise for the rat reference some posts ago Jd'A, I withdraw it unreservedly to save anyone the trouble of finding it and sin-binning it as it deserves.

milamber said...


No apologies necessary.

If you think I can bring anything constructive to the debate (i have my doubts), then I would be more than happy to help out.

Just let me know what you want me to do.