Gold Price Jumps with 'Real Money' ETF Investing, Miners Hedge at 3-Month US Dollar Highs

Thursday, 2/04/2016 13:27

GOLD PRICES jumped to new 3-month highs near $1150 per ounce Thursday lunchtime in London, adding more than $30 for the week so far – but holding little changed for non-US Dollar investors – after ETF trust funds added yet more bullion.

The biggest silver ETF, in contrast, shrank yet again Wednesday, with the iShares Silver Trust (NYSEArca:SLV) now contracting almost 3% since New Year to 2013 levels while the giant SPDR Gold Trust (NYSEArca:GLD) has expanded more than 7% from end-2015's new 8-year lows.

Silver bullion also jumped with gold prices Thursday, reaching 3-month highs above $14.80 per ounce – and adding nearly 4% for the week – as world stock markets steadied with commodity and bond prices, and the US Dollar fell to its lowest value against the single Euro currency since October.

"Driven up by weak US economic data," says German bank Commerzbank's daily commodities note, "gold rose above the technically important 200-day moving average [Wednesday], sparking technical follow-up buying."

"It's been 8 years at least," says one London bullion bank's sales desk today, "since we saw a gold market where producers were hedging, speculators, China and India were buying, and central banks were lending all at the same time."

"Gold ETFs are attracting massive amount of real-money flows year-to-date."

A favored vehicle for US fund managers to gain price exposure during the previous bull market, exchange-traded fund the SPDR Gold Trust (NYSEArca:GLD) yesterday saw its shares in issue swell again, needing another 4.5 tonnes of bullion to back their value.

Reaching total holdings of 690 tonnes, that took the GLD's inflows since New Year to 46 tonnes.

The daily correlation between gold prices and GLD holdings - on a rolling 1-month basis - yesterday reached +0.86, showing the strongest connection since the metal hit fresh 6-year lows at the start of December.

Price-hedging by gold mining companies had already risen 9% in the third quarter of 2015, according to new data today from specialist analysts Thomson Reuters GFMS.

Reversing the drop of Q2 – and taking the global hedgebook across all listed miners to the equivalent of 192 tonnes – the rebound "was overwhelmingly concentrated in an expansion of forward sales," says GFMS, pointing to sales of future production at current prices.

Forward sales – typically done through bullion banks' London offices – accounted for the bulk of the gold mining sector's record-high hedgebook at the start of the 2001-2011 bull market, then equal to 1 year's total output.

But while rising to the highest level since Q3 2012, forward sales at the end of September equalled only 4% of 2015's new record-high global mine output on GFMS's data.

"Trading volumes and price action continue to diminish in Asia in the lead up to Chinese New Year," says the Australian office of Swiss refiners and finance group MKS, "even despite last night's upside break into new territory."

Even with Chinese gold prices rising 1.2% to the highest Yuan value since mid-October overnight, Shanghai gold premiums – over and above international Dollar-price quotes – fell to zero by the close of Thursday's trade.

That premium – which incentivizes local wholesalers to import bullion into the world's second-largest economy and No.2 gold consumer nation – compares with an average $2.50 per ounce over the last 18 months.