Gold price: The great year-end ETF liquidation sale
Gold was hovering near 11-month lows on Wednesday as ETF investors continued to dump the metal. Gold for delivery in February 2017 was exchanging hands for $1,132 an ounce, the lowest since the beginning of February in after hours trading on the Comex market in New York.
Gold is now down more than $200 an ounce from an initial surge on election night as results showed a likely victory for Donald Trump in the US presidential race.
Gold bears are making big bets that Trump's plans for fiscal stimulus, including a $500 billion infrastructure spending program, will lead to strong US economic expansion, higher interest rates. A number of prominent hedge fund managers and billionaires running family offices have moved aggressively out of gold and into stocks (the Dow Jones blue-chip index came close to 20,000 again on Wednesday) and retail investors have followed suit.
The heavy selling of physically-backed gold ETFs is creating its own momentum akin to a run on a bank – many investors are under water after buying a net 160 tonnes in GLD at gold prices above today's level
Since the election investors in top physical gold-backed exchange traded fund – SPDR Gold Shares (NYSEARCA: GLD) – have dumped a net 125.2 tonnes. Outflows so far this week top 12.4 tonnes. GLD dwarfs other physically-backed gold ETFs holding more than 45% of the global total.
GLD vaults now hold 824.5 tonnes or 26.5 million ounces; worth just over $30 billion on Friday. That's down more than $12 billion from the 2016 peak hit early July as the gold price retreats and investors liquidate their holdings.
The heavy selling of physically-backed gold ETFs is creating its own momentum akin to a run on a bank – many investors are under water after buying a net 160 tonnes in GLD at gold prices above today's level. Should erstwhile bullion bulls continue to offload their holdings further falls in the price of gold seem inevitable.
As far back as a month ago Goldman Sachs warned that "if investors were to withdraw from even half of those money-losing holdings, it would spark a $60 sell-off in prices" according to Bloomberg Intelligence.
Year to date, holdings are up still up 182 tonnes. After a few dismal years, GLD rise in assets under management in 2016 up to election day, surpassed the banner years of 2009 and 2010 when investors caught in the global financial crisis and spooked by quantitative easing piled into GLD.
On August 22, 2011 when gold was hitting record highs above $1,900 an ounce GLD became the largest ETF in the world briefly surpassing the venerable SPDR S&P 500 trust at a net asset value of $77.5 billion.
Gold holdings in the trust would peak more than a year later in December 2012 at 1,353 tonnes or 43.5 million ounces. Global ETFs hit a record 2,632 tonnes or 93 million ounces of gold at the time, but has now fallen below 1,800 tonnes, with 200 tonnes redeemed since November 8.