ETF Selling Continues In Gold, Futures Bearishness Marks "Possible Turn In Sentiment"

December 9, 2013

The PRICE of wholesale gold held steady around $1230 per ounce in London trade Monday morning, ticking upwards as European shares slipped but Asian stock markets closed higher after strong data from China.

The Euro rose to 6-week highs vs. the Dollar on the FX market, capping gold priced in the single currency beneath €900 per ounce.

Silver rose 0.7% as commodities also gained, together with major government bond prices, reaching $19.65 per ounce.

"A lot of [gold] selling has now been done," reckons Frances Hudson, co-manager of $271 billion at Standard Life Investments in Edinburgh, quoted by Bloomberg.

"So you could see a more stable base for the gold price to build on."

Last week the giant SPDR Gold Trust (ticker: GLD) shed another 0.9% of the metal held to back its exchange-traded shares, taking the total down to a near 5-year low beneath 836 tonnes.

Bearish betting by money managers, hedge funds and other speculators meantime rose in the week-to-last-Tuesday to 315 tonnes equivalent, well above the 250-tonne average of 2013 to date.

That compares with the previous 5-year average short position of 96 tonnes.

Overall, however, so-called speculative traders remain bullish on gold in aggregate, with their long position in US futures and options outweighing those short bets by 151 tonnes – the smallest "net long" since midsummer's multi-year lows.

"This could be just the news that the gold bugs wanted to hear," says the Financial Times

"More and more traders have lost faith...Yet the more that a consensus [for lower 2014 prices] builds, the closer to a possible turn in sentiment."

"We could expect a short-term recovery in prices," Reuters quotes Hong Kong economist Alexis Garatti at Haitong International Research. 

"[Because] in our view, the mood of the market is exaggerated regarding the macroeconomic situation in the US."

New data from Beijing meantime showed a surge in China's exports for November, taking the overall trade surplus to a sudden 4-year high.

The world's largest gold mining producer, China is now also the world's largest end-buyer of gold, overtaking India in 2013, which will likely see a drop in gold imports to 900 tonnes according to comments Monday from market-development group the World Gold Council.

Gold prices on the Shanghai Gold Exchange rose Monday in brisk trade, even as the Yuan exchange rate was raised to new highs against the Dollar by the People's Bank.

"There's so much room to grow," says World Gold Council investment director for the Far East, Roger Liu, quoted by the Wall Street Journal.

Noting China's current gold accumulation of 4.5 grams per head per year, and contrasting it with the global 24-gram average, "I expect more [ETF trust fund] products along the lines of SPDR Trust to pop up in China," Liu concludes.

 

Adrian Ash

(c) BullionVault 2013

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

Adrian Ash is head of research at BullionVault, the physical gold and silver market for private investors online. City correspondent for Bill Bonner’s Daily Reckoning from 2003 to 2008, and previously head of editorial at London's top publisher of private-investment advice, Adrian is now a regular contributor to many leading analysis sites including Forbes and Gold-Eagle, and a regular guest on the BBC as well as international broadcasters. His views on the gold market are frequently quoted by the Financial Times, Daily Telegraph, MarketWatch and many other leading new outlets.

 

China is poised to become world's biggest gold consumer.

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