Will gold-backed ETP outflows be affected by central bank actions?

The U.S. Comex gold futures fell $122.70 and 7.69% in April, representing the largest sell-off in gold since December 2011 when the gold futures fell over $200 intra-month. The gold futures dropped 12.16% year-to-date after a bull-run for twelve consecutive years as the prices surged from $279 at the end of 2001 to $1,675.80 at the end of 2012. Year-to-date, the Dollar Index rose 2.48%, the S&P 500 index surged 12.02%, the Euro Stoxx 50 index rose 2.89% while the CRB Commodity index dropped 2.33%.

Mixed Global Economic Data

Global economic news has been mixed at best. In the U.S., the April consumer confidence index jumped unexpectedly to 68.1 while the S&P/Case-Shiller housing index rose 9.3% year-on-year in February. Despite the housing improvement, the manufacturing remains an area of concern as seen in the recent lower-than-expected April Chicago purchasing manager index. In April, China's manufacturing PMI expanded at 50.6 compared to 50.9 in March, indicating that the expansion is slowing down. While the April jobless rate in Germany was unchanged at 5.4%, the Euro-area unemployment rate inched up to 12.1% and the youth unemployment rate reached 24%. The 11% rebound in the gold futures from the April 15 trough probably reflects the expectations that the U.S. Fed will maintain its bond purchase program while the ECB will cut rates further given the worsening economic data.

Continued ETP Outflows

Gold investors are keenly watching the direction of the gold-backed ETP holdings, which fell 174 metric tons or 7.1% in April to 2,275.84 metric tons according to Bloomberg. The SPDR gold holdings fell to a 43-month low to 1,078.54 tons at the end of April. Deutsche Bank estimated that institutions, which hold close to 50% of SPDR, may further sell down 5 million ounces of gold in Q2. The commodity funds also saw a large net outflow of $7 billion in Q1 according to Barclays. While such outflow may seem to reflect global economic weakness, gold was the single asset dragging down the aggregate with $9.2 billion of net gold funds outflow in Q1. This Wednesday's FOMC meeting and this Thursday's ECB announcements will give further clues to gold investors which way they should go.

About the Author
Austin Kiddle

Austin Kiddle is a director of the London-based gold broker Sharps Pixley Ltd.

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