Gold ETF outflows bring metal nearly to $1,300

Overnight follow-through selling continued in gold and brought it to within $6 of the $1,300.00 mark at one point. The nearly incessant flow of gold ounces out of global ETFs resulted in their cumulative balances having fallen back to levels not seen since June of last year. As things stood this morning, the yellow metal was on course to complete its fourth week-on-week drop as well as the most extended declining trend in nearly one year. Trading at the 150-day moving average within the same month is not what gold buyers, who did turn out on January 4, with the expectation that 2011 was simply a continuation of 2010, had in mind.

Spot bullion dealing opened the final session of the week with a very modest bounce, gaining 90 cents to rise to the $1,315.80 level while the US dollar slipped 0.09 lower to 77.69 on the index, just ahead of the release of US GDP data. Support at or near $1,300 per ounce is now the talk at trading stations, and the charts do not offer too much in the way of same until the 200-day moving average (nearer to $1,280) in that regard. However, after nearly a full month of battering, some rebound ought not to come as a shocker. For the time being, $1,320 and $1,350 up to $1,375 will present barriers to have to roll over.

Much of such rebounds depends on what happens in the ETF niche. The Motley Fool’s UK twin, Fool UK (we won’t go there with puns) mentions (not in passing) that: “the relentless march upward of the gold price -- which began several years before the financial crisis -- seems suspiciously correlated with the invention of gold exchange-traded funds. These now dominate gold trading, yet they were only launched in 2003. Gold ETF holdings rival the reserves of all but the [five] largest central bank hordes [sic]. It's hard not to suspect this sudden accessibility of gold as an asset has moved the price too far, too fast.”

Recall the “happy digging” chart we showed at the end of Wednesday’s comment? Well, as it (unsurprisingly) turns out, China was quite the contributor to the non-peak gold peak that global mine production recorded last year. The country managed to dig up nearly 341 tonnes of the shiny stuff in 2010, making for a gain of 8.57 percent. China is entering the fourth year on the list of participants in the global gold output race at “pole position.” Well, at least in this case, it was acknowledged that China’s gold output was “stimulated by the upward trend of gold prices.” Duh.

Meanwhile, silver was off by 6 cents, opening at the $26.86 mark after an overnight visit to the $26.59 level. Platinum and palladium managed more defined gains at the open, with the former climbing $7 to $1,792.00 per ounce, and the latter adding $3 to open at the $807.00 price mark per troy ounce. Contrary to expectations, carmaker Ford reported lower Q4 income as it opted to trim debt from its balance sheets.

Signs that gold (and silver) are not the sole assets being unceremoniously dumped by fickle spec hands (something we have repeatedly warned about) were clearly manifest in the markets, overall. Mutual funds aimed at capitalizing on emerging markets, for example, suffered their largest weekly loss of funds since the middle of 2008 (a time when practically everything was being sold off) as global investors demonstrated that their speculation regarding interest rates trends has become more of a…conviction.

Such convictions are not based only on the fact that the “BICs” (Brazil, India, China) have already lifted interest rates in order to combat inflation but also on the perception that the EU, the US, perhaps Russia and others (see: the Arab world) will soon want to do something in order to avert the possibility that inflation gets out of hand. In so many words, the time has come (judging by inflation levels in 7 out of 10 of the largest developing nations) for central banks to tackle that bogey. Unrest in Algeria, Tunisia, Yemen, and Egypt certainly adds to such perceptions.

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