Gold holdings in exchange traded products listed around the globe hit record high of 77 million ounces as ETF investors anticipate another round of quantitative easing from the Federal Reserve.
Although futures market optimism remains weak — net long speculative positions are hovering near the lowest levels in 3 years — ETP investors appear to be preparing for gold price performance later this year.
According to Bloomberg data, global ETP gold holdings reached a record high 77mn oz last week, as investors appear to be taking advantage of lower prices to position themselves for another round of Federal Reserve stimulus.
Looser monetary policy is likely to be dominant driver of gold price in 2012.
The US Dollar hit a 2-year high last week versus the Euro, as the deteriorating outlook, particularly for the Eurozone, prompted continued investor deleveraging. US dollar strength has hampered the performance of gold since September 2011, making it less reactive to systemic risk. [Euro ETF Tests One-Year Low After Rate Cut]
While politicians have been slow to act, central banks have played a crucial role providing support for the ailing global economy.
This dynamic was highlighted illustrated last week with the ECB cutting interest rates and the BOE increasing its asset purchase scheme in an effort to offset continued policy paralysis at the European government level.
Gold ETF investors are positioning for another round of Quantitative Easing (QE) from the Fed. Disappointing manufacturing and jobs data in the US last week showed that US economic activity is losing momentum, boosting the likelihood that the US Federal Reserve will introduce with a further round of QE.
While the relationship between gold and the US dollar is not straightforward, following previous episodes of quantitative easing, the gold price has strengthened (and the US Dollar has weakened) when the Federal Reserve has injected liquidity into the financial system.