Gold ETF selling continues, bearishness marks possible turn in sentiment

The price of wholesale gold held steady around $1,230 per ounce in London trade Monday morning, ticking upwards as European shares slipped but Asian stock markets closed higher after strong data from China.

The Euro rose to six-week highs vs. the Dollar on the FX market, capping gold priced in the single currency beneath €900 per ounce.

Silver rose 0.7% as commodities also gained, together with major government bond prices, reaching $19.65 per ounce.

"A lot of [gold] selling has now been done," reckons Frances Hudson, co-manager of $271 billion at Standard Life Investments in Edinburgh, quoted by Bloomberg. "So you could see a more stable base for the gold price to build on."

Last week the giant SPDR Gold Trust (ticker: GLD) shed another 0.9% of the metal held to back its exchange-traded shares, taking the total down to a near five-year low beneath 836 tonnes.

Bearish betting by money managers, hedge funds and other speculators meantime rose in the week-to-last-Tuesday to 315 tonnes equivalent, well above the 250-tonne average of 2013 to date.

That compares with the previous five-year average short position of 96 tonnes.

Overall, however, so-called speculative traders remain bullish on gold in aggregate, with their long position in U.S. futures and options outweighing those short bets by 151 tonnes – the smallest "net long" since midsummer's multi-year lows.

"This could be just the news that the gold bugs wanted to hear," says the Financial Times

"More and more traders have lost faith...Yet the more that a consensus [for lower 2014 prices] builds, the closer to a possible turn in sentiment."

"We could expect a short-term recovery in prices," Reuters quotes Hong Kong economist Alexis Garatti at Haitong International Research. "[Because] in our view, the mood of the market is exaggerated regarding the macroeconomic situation in the U.S."

New data from Beijing meantime showed a surge in China's exports for November, taking the overall trade surplus to a sudden four-year high.

The world's largest gold mining producer, China is now also the world's largest end-buyer of gold, overtaking India in 2013, which will likely see a drop in gold imports to 900 tonnes according to comments Monday from market-development group the World Gold Council.

Gold prices on the Shanghai Gold Exchange rose Monday in brisk trade, even as the Yuan exchange rate was raised to new highs against the Dollar by the People's Bank.

"There's so much room to grow," says World Gold Council investment director for the Far East, Roger Liu, quoted by the Wall Street Journal.

Noting China's current gold accumulation of 4.5 grams per head per year, and contrasting it with the global 24-gram average, "I expect more [ETF trust fund] products along the lines of SPDR Trust to pop up in China," Liu concludes.

About the Author

Adrian Ash runs the research desk at BullionVault.