Gold at a New Low for the Year, but ETF
Investors Still Love It
May 15 2018
Gold prices slumped, falling
below the $1,300 level for the first time since December as a rising dollar and
higher Treasury yields led traders to dump the precious metal.But while the
bullion price in the futures market on Tuesday reached a new low for the year,
exchange-traded-fund investors recently have been bullish on gold. Investors
poured about $3.1 billion into gold-backed ETFs during April, the highest total
since February 2017, data from the World Gold Council, an industry trade group,
showed.
The contrasting views highlight
the two opposing forces that have kept gold prices mostly locked in a narrow
range between $1,300 and $1,350 a troy ounce, avoiding the big price swings
that have rocked other assets such as stocks and oil.ETF buyers and other bulls
have turned to gold as a traditional haven play during turbulent political
times, with the prospect of a trade war still looming, uncertainty swirling
around North Korea and tensions in Syria and Iran flaring up. Some money
managers are also using gold to hedge against a pickup in inflation signaled by
recent consumer-price data.But speculative interest in gold has softened as
expectations of higher U.S. interest rates have pushed up bond yields and the
dollar, said Maxwell Gold, director of investment strategy at ETF Securities.
“There’s a bifurcation in the types of investors for gold,” he said.
Front-month gold futures tumbled
2.1% Tuesday to $1,288.90 a troy ounce on the Comex division of the New York
Mercantile Exchange—their worst day since December 2016. The drop came after
data showing U.S. retail sales rose broadly in April pushed up Treasury yields
and the dollar, continuing their recent trend.Any time recently that gold has
marched toward the upper end of its trading range, a strengthening dollar and
worries about higher interest rates have zapped its momentum. A rising U.S.
currency makes gold more expensive for overseas buyers, while higher Treasury
yields tend to make the precious metal less attractive by comparison.
With global growth momentum
shifting back to the U.S., the WSJ Dollar Index hit its highest level of the
year Tuesday and in April had its best month since November 2016. And the yield
on the benchmark 10-year U.S. Treasury yield in late April pierced 3% for the
first time in more than four years, with more investors anticipating that the
Federal Reserve will raise interest rates three more times this year, compared
with the previous projection of two. On Tuesday, the yield closed at its
highest level since July 2011.Hedge funds and other speculative investors have
cut wagers on higher gold prices to their lowest level since July. Net bets on
higher gold prices by hedge funds and other speculative investors fell by more
than 50% during the week ended May 1, according to the Commodity Futures
Trading Commission. The net bullish bets stayed near that level the following
week.
An analysis by the World Gold
Council earlier this month showed that demand for gold during the first quarter
was the weakest to start a year in a decade. Sales of gold bars and coins have
also been tepid, a sign to some that retail buyers have cooled on the yellow
metal. Monthly sales of American Eagles, a popular gold coin that is a proxy
for retail sales of physical gold, in recent months have hit their lowest level
since 2015, U.S. Mint data show.“There are major economic, financial and
political issues on the horizon that suggest stronger investment demand and
higher prices at some point—but they’re not here now,” said Jeffrey Christian,
managing partner at commodities research and asset-management firm CPM Group .With
another U.S. interest-rate increase widely anticipated in June, some analysts
expect gold prices to fall leading up to the Fed’s monetary-policy meeting
before recovering, a pattern that has held over the past few years.
Others are projecting that April’s money flows into gold
ETFs will continue as demand for bullion in emerging markets such as China
recover from a weak start in 2018. Gold bulls are hoping that prices can log a
third straight year of gains and bring investment interest back into the
market, with prices still 32% below their 2011 records.“I was a little
concerned when I saw first-quarter demand numbers, but they are starting to
look like an outlier,” said George Milling-Stanley, head of gold strategy at
State Street Global Advisors. “We’re starting to see figures that suggest
demand is a lot better.”
Source: https://www.wsj.com/a