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Gold ETF Impact on Price 'Intuitive' Says SocGen as Euro Gains Before ECB News

Thursday, 9/08/2016 12:27
GOLD PRICES held shy of 3-week highs in London on Thursday, trading at $1347 per ounce as the US Dollar fell near 2-week lows against the Euro ahead of today's European Central Bank decision on interest rates – now negative for commercial banks using the ECB's deposit facility – and quantitative easing.
 
Silver retreated from yesterday's near 4-week highs at $20.13 per ounce, recovering half of an overnight 40 cents drop.
 
Wednesday's new all-time high global stockmarkets saw the giant SPDR Gold Trust (NYSEArca:GLD) shrink by half-a-tonne to just less than 952 tonnes as stockholders liquidated shares.
 
Globally however, exchange-traded trust-fund products backed by gold grew their bullion holdings 1.2% in August according to new data published Thursday by the mining-backed World Gold Council market-development organisation, reaching 2,297 tonnes.
 
Slipping a little over 1% by Dollar value as gold prices retreated, that was still the largest quantity of ETF-held bullion since May 2013 – midway through the metal's worst quarterly price crash in 3 decades.
Chart of global gold ETF-type holdings, courtesy of the World Gold Council
 
"The increase in European gold ETFs countered declines in North America and Asia," says the World Gold Council.
 
"ETF flows are incredibly volatile when compared with other [gold-market] fundamentals," says a new research note from Michael Haigh's commodity team at French investment bank and London bullion market-maker Societe Generale.
 
Analyzing the impact on gold prices of ETF holdings and also the size of net bullish betting by hedge funds in Comex gold derivatives, "The results are extremely intuitive," the research concludes, finding that – for a 10% increase or decrease in ETF flows, the gold price would rise or fall "by approximately 3%" from current levels, "or about $41 per ounce.
 
So if ETF gold flows "fell back to the low experienced in January 2016," SocGen concludes, "[then] according to our model the gold price would drop by 13% to $1168 per ounce – only $102 off" the metal's 6-year lows of the previous month.
 
Looking beyond ECB's decision to the US Fed's meeting ending 21 September, "The [US jobs data] out last Friday, followed by poor ISM manufacturing and now poor ISM non-manufacturing has thrown a real spanner in the works regarding the next Fed rate hike," says a trading-desk note from Swiss refiners MKS Pamp.
 
"We see more potential upside from here with September now looking highly unlikely for rates to move higher," it adds, saying that the gold price's "next important resistance sits well within striking distance at $1353.50 – the downtrend dating back to July 6's post-Brexit high, which has held...4 times now."
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Adrian Ash is director of research at BullionVault, the physical gold and silver 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 is now a regular contributor to many leading analysis sites including Forbes and a regular guest on BBC national and international radio and television news. Adrian's views on the gold market have been sought by the Financial Times and Economist magazine in London; CNBC, Bloomberg and TheStreet.com in New York; Germany's Der Stern; Italy's Il Sole 24 Ore, and many other respected finance publications.

See the full archive of Adrian Ash articles on GoldNews.

Please Note: All articles published here are to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it. Please review our Terms & Conditions for accessing Gold News.

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