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Gold prices to stay elevated; ETP holdings broke records - Standard Chartered Bank

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(Kitco News) - Gold prices should edge slightly higher and average the end of the year at $1,510 an ounce on the back of weakness in U.S. yields or the resumption of quantitative easing (QE) from the Federal Reserve, this according to a report published by Standard Chartered Bank.

The report indicated that while physical demand for gold may be weak, renewed investor interest should keep prices afloat.

“Investor positioning in gold is elevated; thus, a new catalyst will be required to drive additional interest. ETP [Exchange traded product] holdings have reached a new high, and short interest in GLD fell to a July 2017 low,” the report said.

Standard Chartered Bank said that several macroeconomic factors have weighed on gold, including monetary policy and geopolitical risks.

Weaker than expected ISM and U.S. non-farm payroll data have raised the market’s anticipation of renewed interest rate cutting from the Fed, Standard Chartered said.

“The market started pricing in a higher probability of a 25bps rate cut at the October FOMC meeting, rising from less than 40% at the start of last week to above 60% after the weaker-than-expected ISM data. This probability has now risen to above 80%,” the report said.

Additionally, “heightened political risks around Brexit and trade tensions continue to stimulate tactical interest,” according to the bank.

On flows, gold-backed ETPs set record highs this month, according to Standard Chartered, which sees more growth ahead still.

“Metal held across global ETPs has set an all-time high. Despite elevated exposure, we do not believe interest in gold is saturated,” the report said. “Total metal held in trust has reached fresh all-time highs; yet, there is still appetite to add to exposure.”

The regional distribution of ETP flows has shifted towards Europe, Standard Chartered added.

“The 2012 high for North America was 1,742 versus the current 1,445 tonnes (t), but North American holdings tend to be more liquid than the European products,” the report said.

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