Worst day for gold ETFs since April 2013

On Monday gold continued to drift sideways with December futures trading on the Comex market in New York exchanging hands at $1,270 an ounce in early morning trade, up around $2.00 from Friday's close.

Gold has been on the defensive since the start of October and is down nearly $50 after falling to a four month low of $1,243 on October 7.

In recent weeks gold's weakness gave investors in top physical gold-backed exchange traded fund – SPDR Gold Shares (NYSEARCA: GLD) – an excuse to top up on their holdings, but on Friday investors pulled out 16.6 tonnes of gold dropping GLD vaults to 953.6 tonnes or 30.6 million ounces.

Gold has been on the defensive since the start of October and is down nearly $50 an ounce so far this month

GLD's holdings hit a 2016 high early July, but nearly 30 tonnes have been pulled out from the fund's vaults since then, reducing the value of holdings by $3.86 billion as the gold price retreats. Year to date, holdings are up still up 311 tonnes.

GLD dwarfs other physically-backed gold ETFs holding more than 45% of the global total and after a few dismal years, GLD rise in assets under management in 2016 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.

 

Hedge funds slash bullish bets

There are also signs that hedge funds active on the derivatives market have lost confidence in gold's ability to claw back losses suffered since mid-July when the metal touched an intra-day two-year high near $1,380 an ounce.

Bullish bets placed by hedge or so-called managed money on gold futures and options are down by just over 50% from the July high and below the net position reached in May, when gold came close to falling through the $1,200 an ounce level.

According to the CFTC's weekly Commitment of Traders data up to October 18 released on Friday speculators added to short positions – bets that gold could be bought cheaper in future – and cut longs pushing bullish bets down to a net 13.7 million, the lowest since the beginning of March.

During the previous two weeks speculators dumped more than 10 million ounces long gold, the most rapid reduction since 2006, when government first started to collect the data.