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GLD Gold Reserves Decline More Than 25 Tonnes In May

(Kitco News) - Investment flows into gold-backed exchange -traded funds remain positive for the year but the gap has narrowed after strong outflows were reported in May.

According to data compiled by SPDR Gold Shares (NYSE: GLD) the world’s largest physical gold ETF, gold held in trust dropped by 25.98 tonnes last month to 715.07 tonnes. However, investment flows still remain positive for the year, up 6.84 tonnes, as the ETF continues to benefit from the strong inflows seen in January.

Ole Hansen, head of commodity strategy at Saxo bank noted that GLD reserves have fallen back to levels seen at the start of the year before the Swiss National Bank surprised markets and spurred safe-haven demand after it abolished its currency peg against the euro.

He added diminished global economic and political uncertainty, has encouraged investors to abandon their gold positions in search of higher yielding assets.

“Nothing has happened in the last month of months, gold has been fairly range bound and I think some investors were enticed back to equity markets,” he said.

Hansen added that he is not expecting investors to jump back into the gold ETF market anytime as the June Federal Open Market Committee meeting is just two weeks away.

However, despite the increased investment outflows in gold, Hansen remains constructive on the gold market. He added that most investors left in GLD and other ETFs are long-term holders, meaning going forward outflows will start to taper off.

“I think there is more upside potential for gold reserves,” he said. “If we see prices decline then investors could see that as a good entry point to establish a new position. If prices rise then investors will have previously ignored the market will jump in.

“The market is just waiting for the catalyst to part a reaction. And we saw in January how quickly the market can change,” he added.

Peter Hug, global trading director at Kitco Metals, also remains constructive on the gold market, despite increased investment outflows last month.

He said that investors should look at how gold has held up in the face of a stronger U.S. dollar. June U.S. Dollar Index futures ended May up more than 2%; at the same time, Comex June gold futures ended the month up 0.5%.

However, until investment interest picks up, some analysts noted that gold prices will continue to struggle to hold gains above $1,200 an ounce.

“ETF outflows are increasingly becoming a burden on the gold price,” said analysts at Commerzbank.

With gold entering its historically slow summer period, analysts at Barclays also agree that further redemptions in gold-backed ETFs will weigh down the market.

“With physical demand weakening, it does not appear as though investment demand will pick up the slack,” they said.

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

 

 

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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