ETF investors fall behind gold price curve

The vaults are being emptied out

The rally in the gold price gathered steam on Monday, after data out late on Friday showed hedge funds increasing their bullish bets by over 30%.

On the Comex division of the New York Mercantile Exchange, gold futures for April delivery hit $1,339.20, up more than $15.00 from Friday’s close and the highest since October 31.

Gold is up 11.7% in 2014 and after a dismal 2013 when the metal had the worst price performance in 32 years, the gains year to date have seen large bullion investors playing catch-up.

Net long positions – bets that the price will go up – held by large investors or so-called “managed money” surged 31% last week.

Hedge funds’ bullish positions now equal 9.1 million ounces or 258 tonnes, according to Commodity Futures Trading Commission data.

While institutions are trying to get ahead of the curve, investors in exchange traded funds backed by gold, apart from a couple of buying sprees, have largely kept to the sidelines or continued to exit the market.

Total holdings dipped slightly to 1,739.2 tonnes on Friday, only 3.8 tonnes up from multi-year lows reached earlier in 2014.

A similar disconnect between ETF inflows and the price occurred in the final quarter of 2012. The gold price began a steady retreat from $1,800 early October to end the year at $1,670, even as investors continued to pour money into gold ETFs.

Holding peaked above 2,630 tonnes in December 2012, but last year the world’s physical gold trusts experienced outflows of more than 800 tonnes collectively and suffered depreciation of close to $80 billion.

ETF investors fall behind gold price curve

Image by Jason Bechtel

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