Gold News

Gold Price $1920 But 'Paper Gold' Sentiment Falls, Comex and ETF Longs Shrink

GOLD PRICES fell but then rebounded on Monday, starting the second half of 2023 trading at $1920 per Troy ounce after falling 3.4% across the second quarter of the year from end-March's record-high quarterly finish, led by a retreat in what some analysts call 'paper gold' speculation, writes Atsuko Whitehouse at BullionVault.
Global stock markets also gained today, rising above mid-June's 15-month high on the MSCI World Index.
But government bond prices slipped, edging long-term borrowing costs higher – and holding benchmark 10-year US Treasury yields at 3-month highs – after major central banks repeated their vow to raise and keep interest rates higher for longer.
Traders in Fed Funds futures contracts now put an almost 90% probability on the US central bank raising rates again in July, and they are also pricing a 40% chance of a further rate rise in November.
That's up from about 30% before last Thursday's better-than-expected US GDP and falling jobless claims data, which saw gold dip through $1900 for the first time since mid-March.
Gold prices in US Dollar terms made a 5.5% gain across the first half of 2023. 
"On three earlier occasions during the past two decades," says derivatives platform Saxo Bank's commodity strategist Ole Hansen, "a peak in the US Fed funds rate supported a strong gold rally in the months and quarters that followed.
"But with the timing of such a peak [now] being postponed, short-term demand for 'paper' gold through ETFs and futures has suffered."
Chart of Managed Money's net speculative long position in gold futures and options. Source: BullionVault
Latest data from US regulators the CFTC show that hedge funds and other leveraged speculators in Comex gold futures and options – often known as 'paper gold' – cut their bullish betting once again as a group in the week-ending last Tuesday and grew their bearish betting that gold prices will fall.
Overall, that pushed the net long position of Managed Money traders down 8.6% to the smallest since 14 March, back when the US regional banking began with the crisis at Silicon Valley Bank. 
The speculative net long has now shrunk by 42% since the recent high of week-ending 2 May, just before spot gold leapt to a new record high intraday.
"Although speculative sentiment towards gold has cooled," says Koichiro Kamei, a financial and precious-metals analyst in Tokyo, "a bullish outlook is maintained, and the [latest] drop is less than half of what it would have been" based on recent patterns in the net long position.
Gold-backed ETF trust funds also continued to shrink last week, as both the giant SPDR Gold Trust (NYSEArca: GLD) and No.2 competitor the iShares gold ETF (NYSEArca: IAU) saw net investor outflows.
Across June as a whole, shareholders in the GLD gold ETF liquidated 1.9% of the trust fund, down to the smallest since mid-March, while the IAU shrank 1.5% to the smallest 13 April.
In contrast to 'paper' gold contracts and ETFs, demand for physical bullion has risen sharply in No.1 consumer nation China after prices fell to 3.5-month lows last week.
Prices on the Shanghai Gold Exchange have shown a rising premium to London quotes, touching nearly $19 per ounce last Friday – the highest since the SVB banking bail-out in mid-March – and the incentive for new bullion imports averaged $11 across the week, up from $6 the week before.
"Investors are buying on the dip and retail investors are also interested in picking up some jewellery," says Peter Fung, head of dealing at Wing Fung Precious Metals.
Yuan gold prices on the SGE rose to ¥449 per gram this morning, up 9.4% from the start of this year.
But gold demand hit by high prices in No.2 consumer nation India has remained weak, Reuters reports, with dealers offering $4 discounts to landed import prices last week.
"The continuous price correction is prompting buyers to postpone purchases," says Ashok Jain of wholesaler Chenaji Narsingji in Mumbai.
"They are hoping prices will correct further."

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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