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LAWRIE WILLIAMS: Gold gets data boost to end week over $1,320

No sooner had the World Gold Council published a release pointing out that global gold ETFs had added around 3% to their holdings over the whole of 2018, despite a spate of withdrawals from May through to September - particularly out of the largest gold ETF - GLD in the U.S. - than there was a big exodus of gold out of GLD in the first couple of weeks of the latest month.  

But the annual gold ETF flows were decidedly mixed territorially.  Over the whole of 2018, holdings in European gold ETFs rose by 96.8 tonnes, North American funds saw outflows of 13.4 tonnes, mostly out of GLD, while gold ETFs listed in Asia lost total assets of 4.7 tonnes and gold backed ETFs in other regions lost 9.7 tonnes.  The overall figures would have been much lower were it not for some very big inflows in December, led by almost 26 tonnes being added to GLD to which a further 28.56 tonnes were added in January.

However, come the beginning of February gold started being liquidated out of GLD, with withdrawals almost every day.  Indeed all the tonnes of gold added in January have been taken out plus more again so far this month which has seen almost 31 tonnes withdrawn out of this, the biggest gold ETF.

Somewhat unsurprisingly the gold price followed the ETF inflow/outflow pattern - or was it the other way round?  Early gold price strength in 2018 turned to weakness from around mid-April almost right through to October, when it started to pick up again.  The gold price gained additional momentum in January this year seemingly comfortable breaching the $1,300 level on the upside.  But concurrent with the recent GLD gold outflows the gold price was seen to be stuttering and at times got close to breaching the $1,300 level again, but this time to the downside.

However the extremely disappointing December U.S. retail sales data, together with a sharp downturn in the January manufacturing index appear as if they may have rescued the gold price, and it received a strong uplift after the two separate sets of figures were announced - particularly in U.S. trading.  Gold thus managed to end the week a dollar or so above the $1,320 mark despite GLD holdings falling by almost 4 tonnes on Friday.  However, one suspects the decision to withdraw this amount of gold had probably been taken before the latest gold price lift.

We have expressed the view in the past that as goes the level of GLD holdings, so goes the gold price in view of the impact of the U.S. gold futures markets on the metal price - or vice versa.  It has, though, been interesting to note that even during the period of these relatively heavy gold withdrawals out of the GLD ETF the gold price seems to have found support above $1,300 and the latest runup to above the $1,320 level could well represent something of a positive change in sentiment by institutional and other gold investors.  Indeed much of the gold commentary from so-called experts in the precious metals field over the first month and a half of 2019 has been bullish - even from some of the usually conservative bank analysts.

Our own view is that gold is due for a rise and most portents are favourable, but the yellow metal is pretty unpredictable in its price pattern.  Overall it serves as a good wealth protector and as catastrophe insurance.  We are not of the ilk predicting a rapid rise to $10,000 - it may get there eventually but probably not in many of our lifetimes.  However there’s enough geopolitical uncertainty around to carry the price back into the $1,400s this year should some of the more worrying scenarios come about.

16 Feb 2019 | Categories: Gold

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