ETFs Offer 'Green Light' For Higher Gold Prices - Bloomberg Intelligence
(Kitco News) - Gold continues to garner investorattention in the current economic environment, and one analyst says fund flowsindicate prices are nearly ready to take off.
“Alternative asset allocatorsappear hard at work, increasing exposure to gold at an accelerating pace vs.last year, despite the flat price in 2018,” said Mike McGlone, BloombergIntelligence commodity analyst, in a report released Tuesday.
“[But] positions back near levelsthat have marked lows in the nascent bull market show long-liquidation riskshave been mostly alleviated, offering a green light for more priceappreciation.”
The yellow metal saw an early-morningspike Tuesday as uncertainty in Italy boosted the safe-haven metal. Prices havesince come down slightly, with June Comex gold futures last trading at $1,301.20an ounce, down 0.2% for the day.
But gold’s recent price setbackis “typical” of what McGlone refers to as the “nascent bull market.” He addedhe remains optimistic on the metal even if prices may need to move lower first.
“The risk is that gold may needto flush out a few more weaker long positions and revisit the bottom band near$1,230 an ounce before resuming the uptrend,” he said.
“In an environment with thedollar weakening, inflation increasing and stock-market volatility bottoming,costlier gold should be a matter of time.”
What’s more, “peaking” crude oilmay also explain the noticeable investor optimism towards broad commodities andgold, according to McGlone.
The latest CFTC data showed thathedge funds continue to shed their bullish bets, but some analysts noted thatthe selling momentum may be starting to fade, and prices may begin to catch up.
“Since the inception of therate-hike cycle, the number of ounces estimated held by gold ETFs has increasedmore than 2x the price of gold, 52% vs. 22%. The 75 million ounces in gold ETFsequates to gold near $1,600, if the price appreciated at the same pace,” notedMcGlone.
“Despite the gold price beingunchanged from June 2016, ETF holdings have increased substantially. If historyis a guide, the recent flush of futures-speculator net longs is a green lightfor higher prices.”
By Sarah BenaliFor Kitco News
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