Gold Investors Piling Into ETFs Amid Price Fall
(Kitco News) - Holdings of gold by global exchange-traded funds have risento a multi-year high, even if the price of the metal has gone the other waylately.
Comex April gold was trading at $1,310 an ounce as of 8:30 a.m. EDT.The metal closed at $1,325 last Wednesday, before three straight days of large ETFinflows.
Analysts suggested the price dip has encouraged buying ofgold ETFs, as has nervousness about the stock market. However, observerssuggested this ETF buying has been offset by speculative selling andliquidation ahead of this week’s meeting of the Federal Open Market Committee,which is expected to hike U.S. interest rates another 25 basis points.
Gold ETFs trade like stocks but track the price of thecommodity, with metal put into storage to back the shares. This generallyreflects positions that investors hold for the long term, with some of theworld’s largest hedge funds often turning to SPDR Gold Shares - the largestsuch gold ETF - for exposure to the gold market.
“The proximity of the price to the $1,300 mark appears to beattracting additional buyers,” said analysts at Commerzbank in a research note.
Gold ETFs posted inflows of 14.3 tonnes Monday, their highestdaily inflow since September, the bank said. This brings total inflows in thepast three days of trading to 23 tonnes.
“Despite preparation for the Fed toraise rates again, investors have accumulated the biggest holdings ingold-backed funds in almost five years as U.S. President Donald Trump rocks theboat on trade and the equity market wobbles,” said commodities brokerage SPAngel. “Worldwide holdings in exchange-traded investments jumped to 2,267tonnes, the highest since May 2013.”
There has been some increased demandfor physical metal lately, Bart Melek, head of commodities strategy at TDSecurities, told Kitco News in an interview.
“There is some nervousnesssurrounding equity markets,” he continued. “That [ETF buying] might be people’sway to hedge with gold against risk.”
The Dow Jones Industrial Averagetumbled to its lowest level in two weeks Monday. Stocks have not been able toreturn to their record highs in January, in part on worries about a globaltrade war after the Trump administration proposed steel and aluminum tariffs.
But while ETF holdings are up, Aprilgold has lost $15 over the last few trading days.
“Sometimes that happens,” Meleksaid. “We did say we could be seeing some downward pressure ahead of the FOMC,which is coming upon us in fairly quick order.”
A two-day FOMC meeting begins Tuesdaymorning and wraps up Wednesday, with a policy statement scheduled for releasethen at 2 p.m. EDT. At the same time, the Fed will release updated forecasts,and a half an hour later, Jerome Powell will hold his first news conference asnew Fed chief. Traders are expecting another 25-basis-point rate hike.
Rate hikes tend to hurt preciousmetals since they help the U.S. dollar and also increase gold’s so-called“opportunity cost,” which is the lost income from not holding interest-bearingassets instead. Melek pointed out, however, that the trend in the Fed’s currentrate-hiking cycle has been for gold to fall ahead of meetings, and then rallyafterward.
Commerzbank pointed out that the ETFbuying is in fact underpinning gold by helping the metal hold above support.
“The high level of buyinginterest displayed by ETF investors is also likely to prevent the gold pricefrom sliding below the psychologically important $1,300-per-troy-ounce mark,”they said.
By Allen SykoraFor Kitco News
Follow @AllenSykora
asykora@kitco.com Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.