Gold Bugs Getting Impatient

February 27, 2013 at 08:05


When it comes to Old Yeller, investors are starting to get restless.

Last week, global gold exchange-traded funds — such as the SPDR Gold Trust GLD  — suffered their largest outflow since January 2011, according to ETF Securities and a phenomenon noted in an email by Michael Shaoul of Marketfield Asset Management. The liquidation sparked a fairly sizable selloff, with the precious metal falling below $1600 an ounce and touching a seven-month low. From Shaoul:

There are finally some signs of impatience amongst global gold ETF holders with the total ounces of the metal held in global ETFs falling by -1.36mm oz, or -1.62% over the course of last week, to 82.3 mm oz. This is the largest weekly fall since the week ended January 28th 2011 when -1.65mm oz (-2.37%) were redeemed from global ETFs.

That said, gold holdings are still higher than they were in late July 2012, Shaoul notes. At that time, gold prices were comparable to where they are today, although holdings in the precious metal “started to be amassed aggressively in response to both the euro crisis and the belief that the [Fed] would unveil QE3 over the summer,” he said.

The metal fell as low as $1572.80 on Friday. Last week data released by the Commodity Futures Trading Commission showed hedge funds and other investment managers were shorting gold in record numbers.

Technical factors have also weighed on the precious metal. On Friday, a death-cross formation took place as the asset’s 50-day moving average cut below its 200-day moving average. Gold is also set to enter what has typically been a tough month for returns. Gold has averaged about a 2% decline in the month of March since 2000, the worst performing month of the year.

“Clearly much now rests on gold’s ability to stay above its key support which is created in a wide range between $1,525 and $1,575,” Shaoul said. “We would have expected the first test of this support to result in a bounce but we are equally unsurprised that the metal has thus far been unable to repair the damage from last week.

“If ETF holders continue to trim holdings the odds of the metal holding on to support will start to dim appreciably.”

Investors have been dumping their gold ETF holdings in favor of most industrially-linked metals in recent weeks as global risk appetite has increased, says ETF Securities. Last week, gold ETF funds recorded $290 million of outflows, the highest level in over two years, the firm says. Meanwhile, physical palladium ETF holdings saw their largest inflows in history, at $29.8 million, it says. “The fundamental outlook for PGMs remains solid, particularly for palladium,” ETF Securities adds. “With supply disruptions a persistent concern in South Africa and autocatalyst demand showing signs of recovery, palladium appears well placed for gains.”