Are gold ETFs back in favor?

Gold hit a two-month high this morning, it has now gained 8% in the last eight sessions.

Gold analysts are now looking for the yellow metal to test $1,400. Gold’s rally has analysts torn over what has prompted the improvement in the gold price. Evidence of falling Comex inventories have provided some support, as has rising violence in Egypt. News this week of another surge of Syrians fleeing the country will also cause nervousness surrounding the stability of the Middle East.

Physical demand in Asia increased last week and expectations of this continuing as we head into festival season suggests that physical gold bullion demand will continue to the end of the year. Rumours of strikes in South African mines have also caused concern regarding supply.

Reasons for gold’s surge have been attributed to an increasingly common perception that the Fed will not be tapering QE in the near future. Mixed U.S. economic data has caused many to doubt the economic recovery will be as soon as previously indicated.

ETFs back in favor

Last week the world’s largest gold-backed ETF posted its first gain, 0.4%, since last November. News of dumped gold-holdings courtesy of Paulson & Co, Soros et al have also provided further support to gold as fears of further outflows from ETFs have subsided.

It wasn’t just good news for gold-backed ETFs, but silver too. The spot silver price has risen 19% in the last week which was accompanied by a large increase in silver ETF holdings which have now reached nearly 20,000 tonnes. Last week inflows totalled 647 tonnes.

The UK’s Royal Mint has announced a partnership with ETF Securities, this will enable ETF Securities’ customers to redeem their ETFs for physical gold.

The week ahead

Given China’s impressive gold demand, and future expectations, all eyes will be on the country’s PMI data released this week. Following July’s disappointing data that showed the increasing contraction in the country’s manufacturing sector.

Flash PMIs are also released for the Eurozone which is, in contrast to China, seeing vast improvements in its data. Second quarter GDP for Germany will also be released this week. The country was the main driver behind the eurozone’s improvement in the first quarter, all will be looking to see if the trend continued into the second quarter of the year.

Save the Gold

Mineweb report this morning that at the India International Gold Convention the ‘Save Gold Campaign’ will be launched. The bullion industry is hoping the campaign will draw out any gold bars, jewellery and coins that are ‘lying idle’. The site reports, ‘India’s apex bank, the RBI, is to frame and regulate the national gold deposit scheme, where eligible jewellers can mobilise gold through eligible banks. Gold lying idle with corporates, individuals and temples can be unlocked and brought to the market, said DV Ramesh of Bangalore-based The Jewellers Association.’

Gold brought to authorized dealers will be deposited at a bank for a period between one and three years, after the period the gold is returned to the owner plus interest.

About the Author

Jan Skoyles is Head of Research at The Real Asset Company, a platform for secure and efficient gold investment.