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'Refreshed Gold Bulls' Drive Commodity ETFs - Bloomberg Intelligence

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(Kitco News) - Commodity exchange-traded funds (ETFs) inflows point to an excitement in the gold market, according to Bloomberg Intelligence commodity strategist Mike McGlone.

“Dominated by precious metals, inflows indicate a gold market that continues to gain favor despite rapidly increasing financial assets,” McGlone said in a note published on Thursday.

Growing demand for diversification is also contributing to the rising enthusiasm within the commodity ETFs, the note added.

“The three-quarters of commodity exchange-traded funds that track precious metals indicate patient bulls. The dollar value of precious-metals ETF holdings is up 25% since the end of 2016 to $110.5 billion, more than double the pace of the Bloomberg Precious Metals Spot Subindex,” McGlone said.

Gold -market recovery is projected to continue to five-year highs, with steady ETF holdings, the commodity strategist said.

“Though down slightly from the December peak, total known gold ETF holdings reached their highest since May 2013. Indicating an early-stage recovery that's maturing into more of a sustained bull market, gold futures managed-money net positions and open interest are well off similar 2016 peaks. Absent some unforeseen force, gold is poised to revisit resistance levels at the highs from 2013-14,” McGlone wrote.

Rising gold ETF holdings are a sign of investors getting worried about rising financial assets, the note added.

“Indicating divergent strength, gold appears on a solid footing regardless of the record-setting stock market. Despite slipping last year to the lowest level relative to the S&P 500 in a decade, gold and ETF flows have been resilient,” according to McGlone. “When record-low stock market volatility mean-reverts, gold should be a primary beneficiary. A stock market peak should accelerate gold inflows.”

Bloomberg Intelligence sees gold prices coming into resistance at $1,400.

“[Gold] is still recovering from the sharpest decline below its 26-week moving average in three years at the end of 2016. Since that low, dips 2% below this mean have marked bottoms,” McGlone said.

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