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Fewer Activities by ETF Investors Mean Big for Gold Prices

The U.S. Comex gold futures have surged 1.44% this week after rising 0.38% last week. Year-to-date, the gold futures have returned 11.68% compared to -28.26% in 2013. The S&P 500 Index has risen 0.49% and the Euro Stoxx 50 Index has risen 0.82% this week, both trailing behind the gold’s performance. The Dollar Index fell 0.12% in the past two days after rising 0.13% last week.

G-20 Meeting, U.S. Data and Crises Gauge
In the G-20 meeting last weekend, the developed nations committed to maintaining generally loose monetary policies and would be “mindful” of the consequences of their monetary policies to other nations. The countries have also pledged to boost the collective GDP growth by two percent above the rate implied by the current policy path in the next five years. In the U.S., the February Consumer Confidence Index declined 2.6 points to 78.1 compared to an expectation of 80. The U.S. 20-City home prices rose 0.76% in December, slowing down from 1.07% in October and 0.88% in November. In China, credit spread has been widening, reflecting a more cautious attitude in inter-bank lending. In Ukraine, a parliamentary vote on the new government formation has been delayed to 27 February while the country’s banks are suffering from a jump in bank deposits withdrawal.

Shifting Investor Sentiment
The speculative funds have added 31.25% to the net long combined gold positions during the week ending 18 February, led by a 17.52% reduction of the combined short positions. While hedge funds are closing shorts, investors are also moderating their sale of gold-backed ETFs compared to the trend in the past year. Year-to-date, investors have sold three metric tons from the largest gold-backed ETF, the SPDR Gold Trust, compared to a sale of 70 metric tons in the same period in 2013. Although technically the gold futures are in the overbought territory, the changing attitude of investors away from selling gold and the crises in various emerging countries have been positive catalysts for gold prices.

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26 Feb 2014 | Categories: Gold

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