Gold News

Size of Gold ETFs Diverges from Price Longest Since Lehmans, All Eyes on NFP Jobs Data

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.

3-month change in Dollar gold price per ounce vs. tonnes backing all gold ETFs worldwide. Source: BullionVault
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.
After the private-sector ADP estimate yesterday put US jobs growth sharply ahead of analyst forecasts, consensus now expects  January's blow-out non-farm payrolls data from the Bureau of Labor Statistics to be followed by the weakest 1-month addition since December 2020, depths of the USA's second wave of Covid.
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.

Adrian Ash

Adrian Ash, BullionVault Gold News

Adrian Ash is director of research at BullionVault, the world-leading physical gold, silver and platinum market for private investors online. Formerly head of editorial at London's top publisher of private-investment advice, he was City correspondent for The Daily Reckoning from 2003 to 2008, and he has now been researching and writing daily analysis of precious metals and the wider financial markets for over 20 years. A frequent guest on BBC radio and television, Adrian is regularly quoted by the Financial Times, MarketWatch and many other respected news outlets, and his views from inside the bullion market have been sought by the Economist magazine, CNBC, Bloomberg, Germany's Handelsblatt and FAZ, plus Italy's Il Sole 24 Ore.

See the full archive of Adrian Ash articles on GoldNews.

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