SocGen says continued ETF selling will drop gold price to $1,200

The gold price was under pressure on Monday, giving up $6 an ounce to change hands for $1,381 in New York.

Gold has declined more than 17% this year after a dramatic April when the metal fell $200 over just two days following unprecedented outflows from gold-backed exchange traded funds.

ETF holdings of gold have declined to the lowest in more than two years at 2,118 tonnes – down from a record 2,632 tonnes or 93 million ounces in December 2012.

MarketWatch quotes from a new SocGen note that argues continued redemptions will push gold towards $1,200 in the fourth quarter:

We believe that the dramatic gold sell-off in April, combined with the prospect of the Fed starting to taper its QE programme before year-end, has resulted in a paradigm shift in many investors’ attitude towards gold, which is likely to result in continued large-scale gold ETF selling this year and next. ETF gold selling has averaged about 100 tonnes per month since the April sell-off. We expect continued ETF selling to exceed higher demand for jewellery/bars and coins. Therefore, we have revised lower our Q4 13 gold forecast to $1,200/oz.

Socgen's latest downgrade is in contrast to that the French investment and bullion bank's chief global strategist who in April said longer term gold is still heading for five figures.

It also differs from that of HSBC. The Anglo-Hong Kong bank said last week net outflows from gold-backed ETFs have died down and increased investment demand from particularly China will boost the metal which could scale $1,600 before the end of the year.