CONTINUED outflows from gold ETFs saw bullion prices give back yesterday's small rally overnight before regaining $10 per ounce in London on Thursday ahead of tomorrow's key US jobs data report.

 

Silver also rallied after slipping back, adding 18 cents from another dip below $20 per ounce, as the Dollar edged back from yesterday's new 11-week high on its trade-weighted index against the rest of the world's major currencies.

 

But with gold rising back to $1822, most Asian and European stock markets slipped as longer-term borrowing costs rose yet again in the bond market.

 

"Gold fairly quiet as investors await the jobs data out of the US on Friday," says one Asian bullion-trading desk.

 

Tuesday's steep drop in the gold price – made as US Federal Reserve chairman Jerome Powell vowed to keep raising interest rates to fight inflation – saw the sharpest 1-day outflow from the giant SPDR Gold Trust (NYSEArca: GLD) since November, back when gold bullion prices fell to 2.5-year lows as the Fed made it 4th consecutive rate hike of 0.75 percentage points.

 

While the GLD was then unchanged in size Wednesday after that 0.6% drop, the world's second largest gold ETF – the iShares IAU product – yesterday ticked down to its smallest size since late-May 2020.

 

Data compiled and published by the mining industry's World Gold Council says that gold-backed ETFs as a group worldwide shrank in February for the 10th month running.

 

Now 12.2% smaller by the number of shares in issue than at the peak seen amid Russia's invasion of Ukraine, gold ETFs as a group have only contracted for a longer stretch once, shrinking by almost 1/3rd between December 2012 and January 2014 as the price of bullion sank by 25%.

 

Viewed on a 3-month horizon using the WGC data, the Dollar gold price and the size of global ETFs have moved in the same direction 77.2% of the time over the last 15 years. But they have now diverged since October, the longest such split since gold prices fell but ETFs grew during late-2008's meltdown phase of the global financial crisis following the collapse of Lehman Brothers.

 

But betting on a half-point hike at the Fed's meeting in 2 weeks' time today held stronger than 3-in-4, crushing the odds of a second quarter-point rise to follow January's shift to slower rate rises and jumping from 1-in-3 a week ago and surging from beneath 1-in-10 this time last month.

 

Real US rates, as implied by the yield on 10-year Treasury inflation-protected securities, meantime snapped a 3-session rise, slipping to 1.65% per annum.

 

But that inflation-adjusted TIPS yield – against which gold prices typically show a strongly inverse correlation – comes less than 0.1 percentage points below last November's 13-year high, which coincided with Dollar gold prices hitting 2.5-year lows just above $1600 per ounce.