Gold ETF holdings drop again, hedge funds lose interest

Precious metals investors poured money into the sector during July, but safe haven buying dried up in August despite an escalation in geopolitical tensions.

Global exchange traded funds backed by physical gold saw outflows last week of 6.5 tonnes, dropping total holdings to 1,726.4 tonnes, not far off four-year lows of 1,708 reached in June.

17 tonnes left during August and that compares to inflows in July which was the best since November 2012. Year to date 36 tonnes have left the dozens of funds traded around the globe and investment bank Barclays believes 100 tonnes could exit the market in 2014.

Gold bullion holdings in global ETFs hit a record 2,632 tonnes or 93 million ounces in December 2012, but last year saw net redemptions of 800 tonnes.

Silver is performing much better than the yellow metal with last week's addition of 45.3 tonnes in the holdings of silver-backed ETFs, bringing the total within shouting distance of October last year's record 20,121 tonnes.

Like ETF investors, speculators in gold futures and options turned more bearish last week, but the most striking trend is the reduction in open interest – a measure of trading activity.

Bullish bets on gold was cut by 21% to the lowest since June while open interest has fallen to 552,000 futures and options contracts, the lowest in almost five years.

Long positions – bets that the price will go up – held by large investors like hedge funds decreased to 129,611 lots in the week to August 26 according to Commodity Futures Trading Commission data released after the close of business on Friday.

At the same time short positions, indicating weaker prices ahead, jumped sharply to 36,877 which translates on a net basis hedge funds holding 92,734 lots or 9.2 million ounces.

Ole Hansen, chief commodity strategist at Denmark's Saxo Bank, sums up waning interest in gold trading this way:

"During the past five months, gold has traded within an 8% range, but almost half the time the daily close has been within 1% of the average price during this time (1296 USD/oz).

"Lack of movement, rather than than lack of commitment, is probably gold´s biggest headache for the time being as the yellow metal remains stuck between the potential negative impact of rising US interest against increased geopolitical uncertainties along with the risk of deflation in Europe."