The gold trade is becoming too concentrated.  For a nearly free-market mentality, this almost hurts to say.  The SPDR Gold Shares (NYSE: GLD) has just become too large.  The company’s website now shows over $50 billion in assets and it is becoming a simple a question to ask… “When does a commodity ETF become too big and too dominant in a commodity?” It is arguable of course on both sides, but this is larger than most governmental central banks in the world.  The competitors in iShares COMEX Gold Trust (NYSE: IAU) and the ETFS Physical Swiss Gold Shares (NYSE: SGOL) are far less intrusive in market size versus the total size of the gold market.  There is also the Sprott Physical Gold Trust ETV (NYSE: PHYS), although it is a closed-end trust.  Combined, these three are not even 10% of the assets of the SPDR Gold Shares (NYSE: GLD).

The iShares COMEX Gold Trust (NYSE: IAU) has filed to grow, although you never know if that will happen.  Sprott did grow, but its shares were brutally punished for the growth in the number of shares in the trust despite the trust merely using it buy more bullion.  Here are the stats on the SPDR Gold Trust site for its size today:

• Tonnes: 1,316.18
• Ounces:42,316,394.92
• Value US$:52,220,255,305.32

At the end of 2009, the rank of gold holdings by the tonne, which has certainly changed now and is for reference only, was as follows:

• 1) Europe 10,856.9 tonnes of gold
• 2) United States 8,133.5 tonnes of gold
• 3) Germany 3,407.6 tonnes of gold
• 4) I.M.F. 3,005.3 tonnes of gold
• 5) Italy 2,451.8 tonnes of gold
• 6) France 2,435.4 tonnes of gold
• 7) China 1,054.0 tonnes of gold
• 8) Switzerland 1,040.1 tonnes of gold
• 9) Japan 765.2 tonnes of gold
• 10) Netherlands 612.5 tonnes of gold

The website for the SPDR Gold Shares has the notation of “Bringing the Gold Market to Investors”…. It is starting to look and feel more and more like “Putting Traders In Charge of the Gold Markets.” With an average volume of 17 million shares and prices north of $120.00, the SPDR Gold ETF currently has well over $2 billion per day in shares bought and sold that are influencing the price of gold.  Sure, you can argue that much of that is momentum trading.  The problem is that some key investors with names like Soros and Paulson are in there with large stakes, and they can invest as much as they want into this day in and day out.

When the CFTC was out in 2009 saying that it was going to look into regulating the size of positions by non-market participants in key energy commodity markets (oil and gas), we noted that this move could just as easily be directed toward the precious metals markets.  That could still happen.  With $50 billion and then some, how large does a gold fund need to get before it is too big?

Again, it almost hurts to say it based on being ‘mostly’ a free-market believer.  The SPDR Gold Trust has just been allowed to get too big.

JON C. OGG

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