Commodity Trade Mantra

Gold Poised For Record Physical Demand & ETF Decline Simultaneously

Gold Poised For Record Physical Demand & ETF Decline Simultaneously

Gold Poised For Record Physical Demand & ETF Decline Simultaneously

Gold Prices remain volatile ahead of a two-day meeting of the FOMC – Federal Open Market Committee Tuesday and Wednesday. The macroeconomic backdrop and fundamentals stand bullish for Gold Investment but investor flows and technical factors yet indicate bearishness for the metal. “At best, the outlook is mixed,” said Jeffrey Rhodes, global head of precious metals at INTL FCStone Inc. “For the first time in many years, you’ve almost got an equal number of bulls as bears.

The Upside Record Physical Gold Demand:

Gold has recouped more than half of the steep sell-off from mid-April based on profits booking in the Futures market & strong physical market demand. Physical Gold Demand has remained strong globally ever since Gold Prices hit a two-year low earlier this month. The U.S. Mint has reported a massive sales figure of 208,500 ounces of Gold Bullion so far in April that is the strongest of any month since December 2009. Sales of Gold Coins by the US Mint have trebled from last month, and they have doubled at Australia’s Perth Mint. Reports of strong physical demand for gold lately after a mid-April sell-off is consistent with the historical trend. The current sharp bounce to the upside is likely to be a temporary reaction to the precipitous fall of the past few weeks & there could be another bout of selling. A decisive break above $1,477 would suggest that the downside risk for gold is abating & a rise to the resistance range of $1594 to $1630 could be set as the next target with #1730 being the top order.  The plunge in gold prices has set off a purchasing frenzy among coin and jewelry buyers from China to the U.S. Coin demand from mints in the U.S. and Australia to the U.K. is soaring, while the volume for the benchmark cash contract on the Shanghai Gold Exchange was more than four times last year’s daily average every day since April 16. Premiums to secure supplies in India jumped to five times the level before the slump. China and India are the world’s largest buyers. Over in India – home to the world’s heaviest annual gold buying – “Everyone is thinking that they will miss the bus if they don’t buy now as prices have started moving up,” says Ramesh Pahlajani, a partner at Bherumal Shamandas Jewellers in Mumbai, speaking to Bloomberg. The famous Zaveri Bazaar was “thronged” for the second weekend running, the newswire says, while Western households are also rushing to buy gold.

The Flip-side Record Gold ETF / ETP Outflows:

Gold held in exchange-traded funds and products backed by the metal is set for the biggest monthly drop ever, after investors sold out of bullion on optimism the global economy is recovering. Assets in ETPs fell 168.22 metric tons to 2,281.62 tons as of yesterday, heading for the biggest monthly drop on record in tonnage terms, data compiled by Bloomberg show. At today’s price, the decline in holdings is valued at about $8 billion. Gold tumbled into a bear market this month as equity markets rallied on improving global growth and weakening expectations for Inflation. Gold Prices plunged 14% in the two sessions to April 15, the most since 1983, and hit a low of $1,321.95 an ounce on April 16, which stunned investors, and prompted them to slash holdings of exchange-traded funds. . Since then, spot Gold Bullion has rebounded 11%, as a surge in physical demand offsets record ETP outflows. The SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, said its holdings fell 0.22% to 1,080.64 tons on Monday from 1,083.05 tons on Friday to their lowest since September 2009. Global Gold Holdings have dropped 13% this year as assets held in the SPDR Gold Trust, the largest bullion ETP, tumbled 20%. SPDR gold assets slumped 11.5% in April.

Factors that are against & the ones which support Higher Gold Prices:

The risk of further Gold ETP outflows would subside if prices recover to above the $1,500 level or equity markets under-perform. The key question in the near term is whether retail and jewelry demand can continue to counter Gold ETP outflows. Crude Oil Prices have gained substantial upside near-term technical momentum recently, which is a bullish underlying factor for the raw commodity sector, including Gold and Silver. At the same time, large speculators returned as sellers of precious metals futures and options on the Comex division of the New York Mercantile Exchange (NYMEX), trimming back exposure in all precious metals and slashing gold positions, according to U.S. government data. MCX Gold Prices at the Multi-Commodity Exchange in India are expected to remain weak as the Rupee (INR) continues to climb against the now weakening US Dollar.

The Euro and peripheral European debt markets have reacted positively to the new Italian government and the announcement that Spain will get two more years to achieve the 3% budget deficit target. Italy has a broad coalition government led by Enrico Letta. There is increasing talk out of Europe that the severe austerity measures imposed on a number of countries are not yielding the desired results and that politicians may finally be reconsidering policy options. The ECB (European Central Bank) is likely to lower interest rates from 0.75%. The Standard & Poor’s 500 Index of equities reached an all-time high yesterday and has more than doubled from its 12-year low in 2009. The Federal Reserve on Wednesday will announce its latest monetary policy actions. While no interest rate changes are anticipated from the Fed, the FOMC statement Wednesday afternoon will be very closely scrutinized for clues on future Fed monetary policy. The European Central Bank holds its monthly meeting on Thursday. ECB is widely expected to lower interest rates at Thursday’s gathering. The monthly U.S. jobs report is due out Friday morning.

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