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HSBC: Gold Market Still Vulnerable To ETF Redemptions

By Kitco News
Friday December 26, 2014 9:45 AM

(Kitco News) - Gold prices have found some momentum, Friday, during the Christmas holidays, amid thin trading conditions. However, analysts at HSBC warn that the market is still vulnerable.

In a research note published Dec. 24, they noted the gold market has seen a fall in holdings of gold-backed exchange traded funds. According to data provided by SPRD Gold Shares (NYSE: GLD), gold held in trust dropped by more than 11 tonnes as of Dec. 23. It was the biggest one-day decline since July 2013.

The data shows that as of Dec. 24, GLD held 712.9 tonnes of gold in trust, its lowest level since September 2008. The decline was unexpected as ETF holdings have been relatively stable through most of 2014.

The analysts at HSBC said the drop in holdings is a reminder that ETF redemptions are still a risk to the gold market and is a “bearish development.”

“If ETF investors begin to liquidate more heavily, gold may be in for another round of declines,” they said in their research note.

However, it might take some time to determine the true impact on the ETF redemptions. They said they are not expecting to see further heavy selling of GLD during the holiday trading period. “Gold ETF direction...may bear greater influence on the market after the new year.”

To create renewed investor interest in gold and GLD, HSBC said that there would have to be a significant geopolitical event to trigger safe-haven buying. Another option would that would boost gold would be a strong surprise rally in oil prices.

However, for now these scenarios seem unlikely and “it appears more likely that gold will stay on the defensive,” they said.

By Neils Christensen of Kitco News; nchristensen@kitco.com



Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.
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