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.
The SPDR Gold Shares (NYSEArca: GLD) was 1.5% higher during mid-day trading Monday. The fund declined 5.9% over the past week. [No Capitulation Selling in Gold ETF During Crash]
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.