Gold price drops after ETF outflows resume

The gold price plummeted to a more than one-month low on Monday deepening the 3.5% slide suffered last week as traders and investors in gold-backed ETFs book profits.

On the Comex division of the New York Mercantile Exchange, gold futures for June delivery last traded at $1,311.20 an ounce, down nearly $25 or 1.9% from Friday's close, and not far off the day's low of $1,308.40.

The yellow metal has taken a hammering during the past six trading sessions – gold is down from a high above $1,380 reached on Monday last week which was best level since June.

Gold is still up 9.4% since the start of the year, but the positive momentum seems to be grinding to a halt.

Last week saw the first – albeit small – reduction in four weeks of holdings in exchange traded funds backed by physical gold.

Latest data show in the week to 21 March global gold ETF holdings declined by 0.2 tonnes taking total holdings down a notch to 1766.2 tonnes.

The week before saw inflows of 12.3 tonnes – the biggest move since November 2012 and the highest level since December 27.

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 a staggering 800 tonnes.

Holdings of SPDR Gold Shares (NYSEARCA: GLD) – the world’s largest gold ETF holding more than 40% of the total – on Friday shot up 4.2 tonnes, bringing year to date gains to 18.75 tonnes.

While the additions have been fairly modest it compares to 2013 when GLD recorded only 17 days of inflows over the course of the 12 months and almost 540 tonnes left the fund.

In contrast to ETF investors, speculators in gold futures and options turned more bullish last week.

Long positions – bets that the price will go up – held by large investors like hedge funds increased to 151,939 lots in the week to February 18 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, were cut by 7,563 to just under 13,510, which translates on a net basis hedge funds holding 138,429 lots or 13.8 million ounces, the highest in more than a year.

The 2014 rally in the price of gold has not convinced most bears, and Goldman Sachs  on Friday reiterating its call for gold to fall to around $1,050 an ounce by year-end due to a recovering US economy and rising interest rates.

Image by Javier Cabrio.