Gold and silver ETF outflows slow in October, geopolitical risk premium subsides - Heraeus
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(Kitco News) - Swiss investors increased their gold holdings by 691,000 ounces, or 8% of total Swiss funds’ holdings in October, bucking the global trend of gold ETF divestment, according to analysts at Heraeus.
The analysts noted that at the beginning of November, global gold ETF holdings stood at 87.3 million ounces, down 0.7% on a monthly basis.
“The reasons for the apparent change of strategy may be the ECB’s softer approach to monetary policy following its first month with no rate increase in 10 months, and a much weakened macroeconomic picture emerging in Europe,” the analysts wrote. “Swiss ETF inflow may show that institutions are warming to gold again.”
“The opportunity cost of holding gold in an environment of historically high interest rates has been too much for investors for much of 2023, though as Western central banks near the peak of their cycles, sentiment may be shifting,” they said. “This is expected to take some time, and a rapid return to ETFs would likely require a separate catalyst.”
They also noted that the geopolitical risk premium unwound last week, driving gold prices to a three-week low. “No significant developments in the Levant mean that gold gave back more of its recent gains,” they said. “The price fell through the 200-day moving average, a bad sign for the bulls.”
Turning to silver, the Heraeus analysts noted the precious metal’s underperformance relative to gold continued last week.
“The gold:silver ratio has been rising since August and is now just below 87, significantly higher than the long-term average of 66.3,” they wrote. “The silver price has been consolidating since early this year; $22/oz appears to be the key level to watch. Should this level fail to hold when next tested, the silver price will be vulnerable and could fall further, possibly sub-$20/oz.”
The analysts said that even though silver’s price action has been restrained, demand for silver coins from the U.S. Mint has continued to increase.
“The latest data for October shows 3.94 moz of new coin sales, on par with January and the second-highest monthly sales to date this year,” they wrote. “So far in 2023, the US Mint has sold 21.8 moz of silver coins, more than 50% higher year-on-year for the first 10 months (excl. 356 koz sold so far in November).”
Heraeus also pointed out that outflows from silver ETFs are slowing, mirroring the trend seen on the gold side.
“Outflows averaged 10.8 moz a month in Q3’23, though in October this slowed to only 50 koz, which is negligible when compared to total holdings of 714 moz,” the analysts noted. “German funds led the change in sentiment, having added 836 koz in October.”