Gold rally suppressed by sharp fund outflows
Singapore (May 19) The fences are closing in on bullion bulls as bears take advantage of higher prices to trim their positions in SPDR Gold Trust, reducing the physical gold held by the world's biggest gold exchange-traded fund to its lowest in four months.
Gold ETFs, such as SPDR, issue shares to investors backed by physical metal. Liquidation of the shares will release physical metal into the market. But so far this month the drop in SPDR's holdings has not been reflected in spot prices, suggesting a price correction may be on the cards, analysts say.
In the past seven trading sessions, outflows from New York-based SPDR totalled 21 tonnes, with the May 8 outflow of 10.74 tonnes the highest daily outflow so far this year. The drawndown, worth $825 million at current prices, cut SPDR's holdings to 718.24 tonnes as of Monday, the lowest since mid-January.
The outflows are a big hint that some investors are expecting prices to fall and are getting out of their positions while they can still make some profit, analysts say. Supporting that view is recent data from U.S. Commodity Futures Trading Commission. Speculators in COMEX gold futures and options increased their short positions in the week to May 12 just before the recent gold rally picked up steam. Spot prices have since climbed to their highest in three months near $1,230 an ounce.
"The exchange-traded funds have come off in the past few days, which is counter to the way the price has been performing. It is potentially profit-taking with prices at a three-month high," said Victor Thianpiriya, an analyst with ANZ in Singapore, adding that investors will maintain their 'sell-the-rallies' mentality on a lack of market-moving events.