Absent the weekly COT report for gold and silver, the array of exchange-traded funds available on the market acts as an excellent source of money flow data for both silver and gold. While the media tends to focus on total assets, exchange-traded funds also release the quantity of gold and silver attributed to individual exchange-traded funds.

Recently, gold and silver ETF flows have been obscured by a rift in the market. John Paulson, who earned headlines after betting big on a housing crash, has since seen his funds significantly underperform the market. Combine underperformance with growing fears about the global economy, and you have a perfect storm for hedge fund outflows. Analysts on Wall Street have picked through Paulson’s fund holdings, looking for opportunities to buy assets as his hedge fund unloads on the market.

ETF Flows

Gold and silver ETFs almost perfectly follow gold and silver prices in the short-term due to algorithmic arbitrage between exchange-traded funds and the current spot price quoted by commodities exchanges. Therefore, while investors are unlikely to steal the popular GLD or SLV ETFs at a discount, the GLD and SLV holdings held by Paulson are obscuring a popular source of data for precious metals investors.

Recently, inflows into the GLD ETF have rocketed. As Paulson unloaded as much as one-third of his holdings in GLD, the amount of gold held in storage and attributed to the fund rose to nearly 1300 metric tonnes, up from 1200 tonnes in June. Meanwhile, the SLV exchange-traded fund reports flat-lining in total silver held in supply. The SLV ETF shows holdings bouncing between 9,500 and 10,000 tonnes for much of the past quarter.

Data Contradiction

Open interest in the futures markets for both gold and silver has declined since summer, an indication that investors are curtailing bets on risk assets. Meanwhile, the CTFC’s COT report for currencies confirms this evidence with rising bets on the US Dollar and Japanese Yen against riskier currencies like the Euro and British Pound.

However, these broad measures of sentiment do not reflect investors desire to hold silver and gold while keeping their options open. Spot gold and silver ETFs do not show the same plunging open interest, which indicates investors are interested in gold and silver only if they can buy at spot. Precious metals ETFs are more liquid, offer better short-term plays on bullion, and lack the backwardization or contango concerns that come with futures positions.

While the risk-trade dial appears to be turned to the “off” position, there hasn’t been any real negative change in investor demand for either silver or gold in the short-term. Is Wall Street waking up to long-term stores of value? Is Wall Street’s shunning of the futures market in exchange for ETF holdings indicative of distrust in the commodities futures exchanges?

No conclusion can be drawn from trading data at this time. It does appear, however, that supposedly “risky” assets in the investment community have held their interest better than media reports might suggest. Risk-trades are off—unless the risk-trade is a bet on inflation.