Monday, October 5, 2009

GTU Premium

As Dec gold tests all time highs (1017 last) I figured we should look at the level of retail demand and if we're overbought. We already discussed the drop in O/I and spec long positions which occurred last week but here is a look at the Central GoldTrust(GTU) vs. the Gold etf(GLD). GTU is different than GLD in that its holdings(inventory of metal) stay flat and traders can bid the trust to a premium/discount of its actual holdings. Therefore when GTU rises faster than gold its taking on more of a premium, indicating increased retail appetite which, if severe enough, can lead to an overbought condition.

As you can see GTU has actually been dropping relative to GLD as we head towards the highs, indicating a move from weak to strong hands and silencing the notion of gold being overbought. Of course none of this matters if the USD starts to rally but important nonetheless...