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ETFs Offer 'Green Light' For Higher Gold Prices - Bloomberg Intelligence

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(Kitco News) - Gold continues to garner investor attention in the current economic environment, and one analyst says fund flows indicate prices are nearly ready to take off.

“Alternative asset allocators appear hard at work, increasing exposure to gold at an accelerating pace vs. last year, despite the flat price in 2018,” said Mike McGlone, Bloomberg Intelligence commodity analyst, in a report released Tuesday.

“[But] positions back near levels that have marked lows in the nascent bull market show long-liquidation risks have been mostly alleviated, offering a green light for more price appreciation.”

The yellow metal saw an early-morning spike Tuesday as uncertainty in Italy boosted the safe-haven metal. Prices have since come down slightly, with June Comex gold futures last trading at $1,301.20 an ounce, down 0.2% for the day.

But gold’s recent price setback is “typical” of what McGlone refers to as the “nascent bull market.” He added he remains optimistic on the metal even if prices may need to move lower first.

“The risk is that gold may need to flush out a few more weaker long positions and revisit the bottom band near $1,230 an ounce before resuming the uptrend,” he said.

“In an environment with the dollar weakening, inflation increasing and stock-market volatility bottoming, costlier gold should be a matter of time.”

What’s more, “peaking” crude oil may also explain the noticeable investor optimism towards broad commodities and gold, according to McGlone.

The latest CFTC data showed that hedge funds continue to shed their bullish bets, but some analysts noted that the selling momentum may be starting to fade, and prices may begin to catch up.

“Since the inception of the rate-hike cycle, the number of ounces estimated held by gold ETFs has increased more than 2x the price of gold, 52% vs. 22%. The 75 million ounces in gold ETFs equates to gold near $1,600, if the price appreciated at the same pace,” noted McGlone.

“Despite the gold price being unchanged from June 2016, ETF holdings have increased substantially. If history is a guide, the recent flush of futures-speculator net longs is a green light for higher prices.”

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