Ukraine Gold Rush? Profit-Taking Hits $1900 Bullion, Not Buying
Friday, 2/18/2022 14:09
Selling outweighs gold buying on Ukraine price spike...
GEOPOLITICS might be driving gold prices, but those prices are driving heavy profit-taking among active investors,
writes Adrian Ash at BullionVault.
Ignore anyone who tells you different today. A one-way "gold rush" there ain't on the worsening Nato-Ukraine-Russia tensions.
Not that it's shock news. The gold market has seen this movie many times in the past, most recently in summer 2017 when
North Korea's missile tests included firing an ICBM over northern Japan.
- First, panic headlines spur speculative betting in Comex options;
- Underlying investment flips negative as physical traders take profit;
- Fingers crossed, the crisis then recedes;
- That leaves gold's fundamental strength (or weakness) to decide the longer-term path.
To be clear, gold demand is running strong right now. Thursday's
pop in gold above $1900 as the stock market fell and Ukraine tensions worsened saw gross purchases on BullionVault up 163% from the prior 365-day average by weight.
But selling was twice as heavy, up 485% from its 365-day average. Net-net that resulted in the 5th heaviest 1-day liquidation of the last 3 years.
Maybe that smacks of complacency. Maybe investors in Europe should worry more about the continent's first major-power conflict since WW2. But across BullionVault's global client base, price is determining investor action, rather than proximity to Ukraine.
- Euro gold yesterday touched August 2020 levels, less than 4% below its record high; sales by Eurozone residents outweighed demand 7-to-1;
- Sterling gold remains furthest below its all-time high, and selling among UK clients on Thursday’s spike was only one-third larger than demand;
- Gold priced in the Japanese Yen meantime very nearly touched its record high of August 2020; there were no Yen purchases by BullionVault users, only sales.
Across in the stock market,
gold ETF holdings are flat overall on strong volume.
GLD trading on Thursday was twice as heavy as its 90-day average, with volume in the smaller IAU up around one-half. Neither has shown any sign of investor inflows.
Coin and small-bar dealers in the retail market are meantime cutting their bids to counter heavy customer selling, and new coin demand also looks weak, running so far this month at just 3/5ths of last year's average daily pace for American gold Eagles from the US Mint.
So are the sellers right? Is now the time to quit gold or go short?
Firstly, no one ever went broke taking a profit. Secondly, net liquidation in gold remains marginal following
January's profit taking, even on this week's multi-month and near-record price highs.
Net-net since 1 February customers have liquidated just half-a-kilo – barely 0.001% of the
47 tonnes belonging to BullionVault users in total – thanks to solid net demand ahead of this week's profit taking.
Thirdly, and further ahead, the underlying drivers of today's near-record gold prices look set to hold firm, even while the lack of physical follow-through from that Comex speculation means bullion prices are likely to retreat if (and when) Nato-Russia tensions ease (fingers crossed).
- Asian consumer demand continues to rebound from the Covid shutdown;
- Central banks also continue to accumulate gold as a group;
- Most notably, gold's rise against the stock-market drop so far in 2022 suggests that portfolio managers are using gold to spread risk as the cost of living hits corporate earnings and drives borrowing costs higher.
Geopolitics, in short, might be driving gold prices right now. But while those prices are driving heavy profit-taking among active investors, the long-term picture for physical bullion investing looks positive.
Most of all because so much else in the economy and financial markets looks negative.
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