Make Kitco Your Homepage

Analysts Still See Potential In Gold Despite 7% Drop In July ETF Holdings

Kitco News

Editor's Note: Kitco readers, have your say! Check out our newest feature – KITCO CHAT! – where you can share your comments and ask questions directly to us.

(Kitco News) - Despite a 7% drop in holdings of the world’s largest gold-backed exchange-traded fund last month, analysts have said there are signs of underlying strength in the marketplace, as futures prices have pushed to a nearly 2-month high.

Last month, SPRD Gold Shares (NYSE: GLD) saw its gold holding decline by 60.62 tonnes to 791.80 tonnes, its lowest level since March 2016; so far this year, GLD’s holdings are down 30.29 tonnes.

However, last month’s outflows are not reflected in current prices, which have bounced significantly off July’s four-month low. December Comex gold futures settled Tuesday at $1,278.40 an ounce, relatively flat on the day.

Colin Cieszynski, senior market analyst at CMC Markets said that the recent rally shows there is still strong interest in the gold market. He added that the futures market could be more important to watch than ETF demand.

“The futures market shows that someone is buying gold; it is just a question of who is buying,” he said.

Cieszynski did acknowledge that weak ETF demand could be having a modest impact on the global gold market. He explained that gold should be a lot higher than its current price as the U.S. dollar remains near its lowest level in 13 months.

“The U.S. dollar is down 5%, and gold is up 2% - so in fact, even though gold has been going up, it hasn’t been going as fast as it should be, possibly due to the decline in ETF holdings,” he said.

Phil Streible, senior market analyst at RJOFutures, said that the drop in gold holdings could be the result of investors reallocating funds out of precious metals and into equity markets that have been pushing to record highs.  However, he added that if prices continue to push higher, he would expect to see renewed interest in GLD and gold.  

“Gold can continue to trend higher up to $1,300,” he said. “$1,300 needs to become support, not resistance point, and at that point you’ll see ETF inflows come back in.”

Amidst geopolitical tensions, Streible sees this as gold’s moment to shine.

“I think geopolitical risks will come back into play and push gold through that 1300,” he said, noting the current state of U.S. relations with North Korea and Russia. “I still think 1300 is the top of the mountain, 1275 is just the first hill.”

Cieszynski also sees further potential in gold as the market will enter its busy period ahead of the Indian wedding season and Christmas shopping season.

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 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.