Gold, silver price rally: No convincing ETF investors

Gold on Monday continued to build on recent gains as sagging equity markets, a fresh slide in the price of oil and doubts about the strength of the US economy saw investors piling into safe haven assets.

In afternoon trade on the Comex division of the New York Mercantile Exchange gold for February delivery was changing hands for $1,235.60 an ounce, up $19.50 or 1.6% from Friday's close.

Gold is now trading at its highest since October 22 and has jumped more than 4% jump so far this year. Gold hit a near four-year low of $1,143 early November.

Uncharacteristically silver trade was more subdued. March contracts rose 1.1% or $0.18 to $16.60 compared to Friday's close and near the day's highs. Silver is up 6.5% in 2015 after losing some 20% of its value last year.

Roughly 60% of silver demand is from industry, with investment and jewellery demand making up the remainder, and the silver price has been dragged down by weakness in other industrial metals like copper which is trading near five-year lows.

Despite a rally in precious metals this year, investors in exchange traded funds backed by physical gold continued to lighten their exposure and silver buyers have not returned to the market in big numbers.

Last week saw a small reduction in holdings and at 1,599.9 tonnes as at January 9, holdings in the dozens of gold-backed ETFs listed around the globe, are now down to levels last seen April 2009.

SPDR Gold Shares (NYSEARCA: GLD) – the world’s largest gold ETF holding more than 40% of the total – has been even harder hit with holdings falling to levels last seen September 2008.

Gold bullion holdings in global ETFs hit a record 2,632 tonnes or 93 million ounces in December 2012, but the outflows have been relentless since then.

Retail investors in silver took a different tack to gold investors last year, stocking vaults at physical silver-backed ETFs to record levels in October of 20,182 tonnes.

But the liquidation since then has been rapid (288 tonnes during the last week of 2014) and last week's meagre 1.7 tonnes addition for total holdings of 19,380 tonnes can hardly be considered a trend-reversal.