Paper Gold ETF (GLD) to Gold London P.M. Fixed Ratio

The ratio between paper gold ETF (GLD) to Gold London P.M. Fixed represents the premium/(discount) of paper relative to physical gold. A reading above 100% suggests a premium of paper over physical gold. A reading below 100% implies a discount.

Paper Gold ETF (GLD) to Gold PM Fixed Ratio and Mean:


The direction ratio's mean (average reading since its inception in 2004) is quite revealing. The slow decay in the mean below 100% suggests deteriorating confidence for paper relative to physical gold. This is reflected by the growing distance of the ratio’s mean from the 100% reference. The increasing distance is reflected by the red arrows.

The negative spikes during hemorrhage phases represent mini-panics in confidence. These mini-panics, illustrated by surge in the physical price of gold relative to paper proxies, collapse the ratio or expand the discount. When the financial system was rocked in October and November 2008 the ratio fell to 92.3% and 94.8%, respectively.

The ratio once again fell to 94.8% in July 2010. This matched the November 2008 discount. Yet, this mini-dash for physical over paper received almost no media attention. What does the invisible hand of the market sense that the rest of the world chooses to ignore?

This discussion answers that question fairly well.