Gold ETFs Contribute to Bullion Price Slide
April 22nd at 3:46pm by Tom Lydon
Gold exchange traded funds are recovering some of the losses from last week’s sell-off as the low prices entice physical demand for gold bullion.
Last Monday, gold experienced its largest-ever daily loss in dollar terms. Today, gold futures are 1.9% higher, trading around $1,423.1 per ounce.
“Physical demand is giving the price a psychological boost, but don’t think that could make up for the 65-tonne outflows from ETFs last week,” Saxo Bank senior manager Ole Hansen said in a Reuters report. [Gold ETF Selling Would Dump More Bullion on Market After Crash]
The current price hike is attributed to pent-up physical demand for bars, coins and jewelry.
“This highlights the dichotomy that has developed between retail and institutional investors,” Hansen said.
In the gold ETF space, GLD reduced its physical holdings by 0.88% Friday to its lowest level since March 2010. However, as money exited gold funds, hedge funds and money managers increased net longs in gold futures and options.
“Given the speed and magnitude of the price decline on Friday and Monday (of last week), which is captured within these data, it would appear any positions of size that were instigated were quickly closed, whether it was long liquidation followed by fresh longs at lower levels or fresh shorts covered subsequently,” Barclays said in a note
“The market is obviously looking for someone to show an interest to buy at these levels but it’s quite a traditional set-up that we have a sell-off and then tentative recoveries the following days,” Hansen added.
Some, though, caution that this rebound will be short-lived.
“We still believe the market went through a fundamental shift and that a sustained rebound …is very unlikely,” VTB analyst Andrey Kryuchenkov said in the article.
Gold ETFs have seen outflows recently after the precious metal tallied 12 straight years of gains.
“I really do not think you can estimate the amount of money ‘safely parked’ in gold that can quickly head for the exit when people realize they have bought into the latest bubble,” Alan Miller at SCM Private said in a separate report. “When seemingly every taxi driver holds something, and today that thing seems to be a gold fund, it normally marks the top.”
ETF Global Insight, research firm, has estimated that retail investors, or individual investors, account for about 40% of the ETF market in the U.S. Boost ETP, institutional ETP provider, there is a total of 54 gold-backed ETPs trading, which holds 81 million ounces of gold, valued at about $130 billion as of the end of March. Currently, thousands of individual investors are taking losses from their gold investments, an asset class that was not accessible to the average investor, reports Chris Vellacott and Clare Hutchison for Reuters. [Gold ETFs Plunge and Part Ways with the S&P 500]
GLD has seen outflows of around $9.8 billion year-to-date. This is the third largest outflow on record since GLD started trading in 2004. Analysts claim gold ETFs have accounted for gold falling around 20% from 2011 highs. [Dull Gold Helps Inverse ETFs Shine]
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Tisha Guerrero contributed to this article.
Full disclosure: Tom Lydon’s clients own GLD.
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