Valuation is much more instructive than just tons stored in exchange-traded funds. Net inflows into the major gold funds over the third quarter of 2008 exceeded $3 billion with one particularly exciting week in September. This was true for SPDR Gold Fund (NYSE:GLD). Silver funds such as the iShares Silver Trust (AMEX:SLV) also saw substantial activity.

The accompanying charts (compliments of Minebweb) look at flows into and out of the gold and silver exchange traded funds over the past quarter. This time, however, rather than looking at tonnage, the charts shows the effective value of the metal in the funds at the end of each trading day, valued on the basis of the gold pm fix or the silver daily fix for each day.

This can be a much more instructive analysis than looking merely at tonnage, or at the outright value of the funds from one end of the quarter or another. Inflows and outflows are not steady day by day and a snap shot valuation of the amount of metal in the fund at the start and end of any particular period disguises the actual amount of money that is ebbing and flowing through the instrument.

Over the quarter the gold funds under scrutiny here experienced inflows on 28 trading days and outflows on 20 days, while the silver funds drew investment in on 26 days, and suffered outflows on just eight days. In principle, therefore, this makes gold look as if it is starting to experience "noise" with some speculative elements trading in and out of the instruments. So what do the numbers tell us?

We are not sure other than knowing that these ETFs are accumulating an enormous amount of the precious metals.Taking the daily change in tonnage and valuing this via the daily pm fixes gives a more accurate pointer to market sentiment.

On this basis, there was a net inflow of funds over the quarter of $3.4 billion and in the five trading days from 17th to 23rd September alone, some $3.2 billion were poured into the major gold funds. Equally, and in the interests of balance for the purposes of this argument, $1.0 billion had come out in three days between the 8th and 10th September.

Approximate daily gold EF flows, $M

Approximate daily silver ETF flows, $M

Analysis of the silver funds throws up the following results.

Tonnage at start of quarter: 7,015; tonnage at end of quarter 8,172; a gain of 1,157 tons.Value of silver in these funds, basis the London fix; start of quarter $4.0 billion, end of quarter $3.5 billion, a fall of just less than $500 million.