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Oct 24, 2017

S3 Analytics: Short Covering in GOLD ETFs

According to ZeroHedge, the Dollar Index fell and the price of gold increased as President Trump said he was “very, very close” to a Fed chairperson decision. A possible replacement to Fed Chair Janet Yellen has been rumored for the past several weeks with Jerome Powell and Kevin Warsh the leading candidates.

In response to a possible gold rally, short interest in the larger Gold ETF’s has declined by over $500 million, or 17%, in October.

Surprisingly, October ETF inflows increased for only 3 out of these four ETFs. Long holders of the IAU, GDX and GDXJ ETFs increased their positions by $460 million, but there were $425 million of outflows in the GLD ETF.

It may be that long ETF holders think that the new Fed Chair will be Jerome Powell, who is much like Janet Yellen with regards to interest rate policy, balance sheet growth, deregulation and Fed policy. Therefore, the price of gold will not spike on the news and long ETF shareholders are beginning to sell off some of their holdings.

Or, the new Fed Chair could be Kevin Warsh, who is more data based on interest rate policy, looking to shrink the Fed’s balance sheet, is pro-deregulation and more hawkish on Fed policy. This would cause the gold ETF short sellers to cover their positions in anticipation of a gold rally.

We’ll see in the next week whether the longs or shorts predicted correctly.

Want deeper insight into the above analysis? Contact:
Managing Director Predictive Analytics, S3 Partners, LLC
The information herein (some of which has been obtained from third party sources without verification) is believed by S3 Partners, LLC ('S3 Partners') to be reliable and accurate. Neither S3 Partners nor any of its affiliates makes any representation as to the accuracy or completeness of the information herein or accepts liability arising from its use. Prior to making any decisions based on the information herein, you should determine, without reliance upon S3 Partners, the economic risks and merits, as well as the legal, tax, accounting and investment consequences, of such decision.

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