“Tug of War” in Gold as Asians Buy Physical and ETF Investors Sell

tugofwarOutflows from the world’s biggest gold exchange traded fund, the SPDR Gold Trust (ticker: GLD), continued yesterday for the eleventh day running, taking the total volume of gold held to back GLD shares to its lowest level since November 2011.
“It is really a tug of war between ETF selling and physical buying right now,” says Yuichi Ikemizu, head of commodity trading, Japan, at Standard Bank.   “We have seen quite good physical demand from China and Southeast Asia, but the ETF selling has put a lid on gold prices.”

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U.S. DOLLAR prices to buy gold hovered around $1575 per ounce Wednesday morning in London, in line with last week’s close, as dealers in Asia reported an increase in demand for physical bullion, in contrast with exchange traded funds, which have continued to see selling, in what one analyst calls a “tug of war” between physical buying and ETF selling.

 

“Short-term, gold should drift lower to the short-term support line at $1569/65 or even to the previous low at $1555,” say technical analysts at SocieteGenerale.

 

“Initial support is at 1564.88,” adds UBS.

 

“A break below [that level] would expose $1556.50, the June 28 low and then $1533.70, the May 16, 2012 low.”

 

Gold in Sterling hovered just below £1045 an ounce for most of this morning, slightly down on the week, while gold in Euros stayed below €1210 an ounce.

 

Silver meantime hovered around $28.70 an ounce, very slightly up on the week, while other commodities were similarly flat. Stock markets extended yesterday’s gains, in contrast with major government bond prices which fell.

 

“We remain somewhat cautious on gold and silver,” says INTL FCStone analyst Ed Meir.

 

“They could be hit by a downward reversal if and when markets start to decouple from the surging equity markets.”

 

Stock markets in Europe extended yesterday’s gains this morning after several major indices closed at multi-year highs Tuesday.

 

In London, the FTSE 100 posted its highest close since January 2008 yesterday, while over in the US the Dow saw a new all-time record close and the S&P 500 closed at its highest level since October 31 2007, less than 2% off its all-time record close set earlier that month.

 

Yesterday saw the release of service sector purchasing managers’ index data for a number of economies, which indicated better-than-expected conditions in the US, UK and Eurozone.

 

“Looking forward,” says a note from Credit Agricole, “[stock market] sentiment could get further support from data this week as the {Federal Reserve’s] Beige Book today will probably show that employment continued to grow ahead of Friday’s jobs report.”

 

The latest US nonfarm payrolls figure and unemployment rate are due to be published this Friday.The consensus forecast among analysts is for an addition of 160,000 jobs last month, with the unemployment rate expected to stay at 7.9%.

 

Later today, the privately-produced ADP Employment report is due to be released at 08.15 EST.

 

Outflows from the world’s biggest gold exchange traded fund, the SPDR Gold Trust (ticker: GLD), continued yesterday for the eleventh day running, taking the total volume of gold held to back GLD shares to its lowest level since November 2011.

 

“It is really a tug of war between ETF selling and physical buying right now,” says Yuichi Ikemizu, head of commodity trading, Japan, at Standard Bank.

 

“We have seen quite good physical demand from China and Southeast Asia, but the ETF selling has put a lid on gold prices.”

 

In China, the most popular forward contract on the Shanghai Gold Exchange continued to trade at a premium of around $20 an ounce compared to the international wholesale gold price Wednesday.

 

“We are seeing strong and growing support for gold from the physical market,” say Standard Bank commodity strategist Marc Ground, “as evidenced by our Standard Bank Gold Physical Flow Index, which places a floor at around $1560 an ounce.”

 

“If the buying from China, Indonesia and Thailand continues, it will not be very easy to get physical supply,” one dealer in Singapore told newswire Reuters this morning.

 

South Korea’s central bank bought 20 tonnes of gold last month, taking its total gold reserve to 104.4 tonnes, 1.5% of overall reserves, it said in a statement.

 

“As the gold purchase aims to diversify the foreign exchange portfolio over the long haul, gold prices’ short-term volatility have not been considered,” said Lee Jung, head of the Bank of Korea’s investment strategy team.

 

February also Russia and Kazakhstan continue to buy gold.

 

Ben Traynor

BullionVault

 

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Comments

  1. since when is physical metal responsible for price discovery?
     
    Either way nice chop in the price action of silver. THAT is a tug of war. Beats falling off a cliff (knock on wood).

  2. BY THE WAY, KING WORLD NEWS IS OUT TODAY WITH ANOTHER PIECE THAT OIL GOLD AND SILVER SET TO EXPLODE FOR THE 17TH TIME THIS YEAR.

    • Only 17? I guess we are barely 2 months into the year lmao.
       
      Well. We retook 29 for the moment. the monkeys better fire up their computers.

    • there we go, computers fired up, looks like we hit an air pocket.

    • I call it nonsense! For a long time, these financial “experts” keep pointing out the obvious thing and the majority of their predictions are false and they don’t actually happen. I recommend everyone and especially the newer precious metals stackers not to listen the financial “experts’” predictions since the majority of them are wrong most of the time. That’s what drives most of the precious metals’ buyers crazy! “Listen to all follow none.”

  3. Victor the Cleaner wrote a really good article about the GLD ETF last year. 
    http://victorthecleaner.wordpress.com/2012/06/01/gld-the-central-bank-of-the-bullion-banks/

  4. Silver got wood!

    • indeed, let’s hope the morning wood keeps on going as a seeing eye boner for the next month or so… and get some momentum!

    • Just a setup for profit taking and shaking out the weak physical holders who are afraid it will drop and never recover. I call it pump and dump. They pump the price $1 or so then turn around and smash it, taking a profit on the move in both directions.

    • It sure does! And that’s what attracts a lot of people, especially the newer ones.

  5. More people are starting to wake up realizing that in reality, these precious metals ETF are only pieces of papers like fiat currencies, are only promises and are the same as stocks. The more people wakes up, the more there are signs that the collapse is coming soon.

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