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Gold Price Slips from Rebound as GLD and IAU ETFs Shrink, 'Transitory' Inflation Hits 3-Decade High

GOLD PRICES slipped from last week's rebound in Asian and London trade Monday after the major US gold ETFs continued to liquidate and new inflation data caused more analysts to ask whether inflation really is "transitory" writes Atsuko Whitehouse at BullionVault.
Spot gold prices lost 0.7% to $1748 per ounce by midday in London after recording the first weekly gain in 4 weeks on Friday, rebounding from near 2-month lows hits Wednesday and Thursday.
A retreat in the Dollar's exchange rate then saw gold rally to $1750 for US investors today, with the rebound less marked for UK and Euro investors at £1289 and €1506 respectively.
Silver like the gold price edged lower, down 0.4% to $22.44 per ounce after recovering from 14-month lows to record a 0.5% weekly gain on Friday.
"Bullion ETFs continue to show a net outflow bias, capping prices," says a note from US financial group Citibank. 
New York-listed gold-backed ETF trust fund giants the SPDR Gold Trust (NYSEArca: GLD) and the iShares product (NYSEArca: IAU) both saw net investor outflows last week, shrinking by 0.7% and 0.4% respectively.
That marked the GLD gold ETF's 2nd consecutive weekly outflow of investment cash, while the IAU saw its first outflow in 6 weeks.  
The number of shares issued in the GLD has now shrunk 23% from September 2020's peak, shortly after gold prices hit their current all-time high above $2000 per ounce.
The IAU has meanwhile shrunk by 6% from its record holding of November last year.
Chart of GLD and IAU gold ETF holdings in tonnes. Source: BullionVault
"We remain bearish 2022 bullion markets as a base case," Citi's analysts continue, targeting an average gold price of $1585 next year.
That view comes "albeit with moderate conviction (60% probability) given significant uncertainty about global growth, the inflation outlook, and already rich valuations in equities and credit."
"Anyone trying to convince market participants that inflation is not here, that's a fool's game," says derivatives platform Saxo Bank's commodity strategist Ole Hansen, adding that soaring energy prices due to a supply crunch in China and Europe will likely hit growth and earnings and lead to a volatile October, which will support gold.
With consumers in No.4 gold-buyer Germany seeing inflation at 3-decade highs, data published last Friday showed inflation across the 19-nation Eurozone hit a 13-year high last month, while the US personal consumption expenditures index (PCE) rose to 4.3% in August, the steepest rise in living costs in 30 years.
Annual inflation in Turkey, the world 5th largest gold-buying nation, rose to 19.6% in September, its highest in 2.5 years, new data showed on Monday.
That pushes real rates back into negative territory for cash savers after the central bank surprised markets by cutting its policy rate 100 basis points to 18.0% last month.
"The Fed keeps saying inflation is transitory, but for how long?" Bruce Ikemizu, chief director of the Japan Bullion Market Association asked in his latest note, pointing out the latest surging inflation data.
European stocks struggled on Monday, keeping the EuroStoxx 600 index near a 2-month low, while Asian stock markets also dropped after trading in debt-laden Chinese real estate giant Evergrande was suspended in Hong Kong, pending an announcement "in relation to a major transaction".
The mainland Chinese markets are closed through Thursday for the Golden Week holiday.  
Crude was steady on Monday ahead of a meeting by the Opec oil cartel and its allies, with Brent down 0.1% to $79.22 per barrel after rising for 4 weeks running.
Major government bonds slipped in price meantime, edging longer-term interest rates higher, with 10-year US Treasury yields rising back towards last week's 3-month highs above 1.50% per annum.

Atsuko Whitehouse is the Head of the Japanese Market at BullionVault and the Editor of Japanese GoldNews.

See all articles by Atsuko Whitehouse here.

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