Gold price rally holds, but ETF outflows are accelerating again

The gold price consolidated recent gains on Friday holding the key $1,350 an ounce level it scaled yesterday to reach a month high.

In late afternoon trade on the Comex market in New York December gold futures changed hands at $1,351.60, a slight gain on Thursday’s close, but sharply up from opening levels of $1,335.

Volumes were light especially for a Friday with 111,000 contracts traded by 4:55pm EDT compared to the average daily number of futures dealings of around 170,000.

Gold bulls were buoyed by the fact that bullion managed to climb throughout the day despite a stronger US dollar. Gold and the greenback usually move in opposite directions.

However, limiting the upside for the metal is the continued outflows from the gold-backed ETF market.

Holdings in the world’s largest gold ETF, SPDR Gold Shares (NYSE: GLD) are at their lowest level since February 2009.

As of today GLD 2013 saw outflows of 479 tonnes to 872 tonnes, down 35.4% from the record high of 1,351.24 tonnes hit early December last year.

Outflows have slowed dramatically from the torrid pace earlier this year, but this week GLD holdings decreased another 10.2 tonnes bringing net sales so far in October to 34 tonnes. September’s redemptions equalled 13 tonnes, while August was flat.

In an interview on CNBC Mark Keenan, Cross Commodity Research Strategist, Societe Generale said much of the recent strength in gold has been as a result of short covering in the futures market and a sustained rally should not be expected.

Keenan said that historically November is a good month for the gold price as India, the world’s number one consumer of the metal, enters a season of festivals.

India may well lose its top spot to China this year as efforts by the country to curb Indians’ appetite for gold and a weak rupee crimp buying.

In the past gold has rallied roughly 3% during November, but the tricky gold market in India and ETF selling have clouded the outlook and Keenan said he “would be very surprised” to see gold climbing back up to the August high of $1,400.

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