Susan Thomas and Lewa Pardomuan London and Singapore
GOLD rose more than 2 percent yesterday, supported by strong physical buying after a fall last week to a two-year low, but investors reduced holdings of bullion in the top exchange-traded fund to the lowest in nearly three years.
The technical outlook for gold, which has plunged more than 15 percent so far this year, has yet to improve despite the physical buying in Asia and elsewhere. Spot gold rose more than 2 percent to a session high of $1 438.66 (R13 262) an ounce, more than $100 higher than the two-year low of $1 321 it hit on April 16. It had trimmed those gains to $1 429.40 by midday.
Gold posted its biggest-ever daily loss in dollar terms last Monday, shocking investors, who have used gold as a protection against inflation and other market risks. But while investors fled the market, the price fall has released years of pent-up retail demand.
Parents buying dowries, casual shoppers and tourists have snapped up bars, coins, nuggets and jewellery.
“We’ve been seeing some fairly good buying from the physical market,” Citi analyst David Wilson said.
“The speed and the extent of the pullback on Friday a week ago and Monday [last week] was extreme, and you normally expect to see a push-back from that, and that is essentially why we’ve seen gold go higher.”
The US Mint reported sales of gold coins to the public of 167 500 ounces so far this month, the highest level since May 2010 and half of the all-time monthly high, Barclays said in a note to clients.
“This highlights the dichotomy that has developed between retail and institutional investors,” the bank said.
Wilson and other analysts expected the gold price gains to be short-lived, however, as inflation, one of the key drivers of the gold price, showed signs of easing in big economies.
Investors say it is likely that the US Federal Reserve could soon end its bond-buying programme, which could ease inflationary pressure.
“Sure, the market is vulnerable to intense short covering… while many physical players see these prices as very attractive indeed and will chase price dips,” VTB analyst Andrey Kryuchenkov said. “However, we still believe the market went through a fundamental shift and that a sustained rebound… is very unlikely.”
He said persistent physical interest was needed to support the metal at a time when investors preferred to stay away from the market.
Gold prices thrive in a high-inflation, low-interest rate environment because this reduces the opportunity cost of holding a metal that pays no yield.
Gold rallied to an 11-month high last October after the US Federal Reserve announced its third round of aggressive economic stimulus, raising fears its money-printing to buy assets would stoke inflation.
US gold futures hit an intraday high of $1 438.80 an ounce yesterday from the previous close of $1 395.60. The June delivery was $1 428.70, up 2.4 percent. Holdings of the largest gold-backed exchange-traded fund, New York’s SPDR Gold Trust, dropped 0.88 percent on Friday to the lowest level since May 2010. Holdings of the largest silver-backed exchange-traded fund, New York’s iShares Silver Trust, remained unchanged on the day.
Outflows from exchange-traded funds could indicate that investors are parking their money in assets besides gold, but last week’s trading data from the US also showed that funds had injected new money into gold futures.
Hedge funds and money managers raised their net longs in gold futures and options in the week to April 16, a report by Commodity Futures Trading Commission said on Friday, as new money entered the market at lower prices.
“Given the speed and magnitude of the price decline on Friday and Monday [last week], which is captured within these data, it would appear any positions of size that were instigated were quickly closed, whether it was long liquidation followed by fresh longs at lower levels or fresh shorts covered subsequently,” Barclays said.
Gold prices have come under pressure in part because of a plan by Cyprus, unveiled earlier this month, to sell excess gold reserves to raise about e400 million (R4.8 billion), which led to speculation other indebted euro zone countries could follow suit.
In other markets, the dollar strengthened towards ¥100 and shares rose after the Group of 20 accepted Japan’s bold stimulus policies, helping to counter gloom over the global growth outlook. Other precious metals benefited from gold’s gains, with silver up almost 2 percent at $23.47 an ounce and palladium up more than 1 percent at $679.22. Platinum rose over 1.5 percent to $1 432. – Reuters