More ETF gold at risk sub-$1,200 says BarCap as #1 holdings hit 5-year low

December 17, 2013 07:49 AM

Yesterday's rise of $15 per ounce in gold was erased Tuesday morning in Asia and London, as the U.S. dollar rose and world stock markets held flat overall.

Trading back at last week's closing level of $1,238 per ounce, gold tracked broader commodity markets, where Brent crude oil retreated to $109 per barrel.

Gold for U.K. investors edged up to £761 per ounce as the British pound fell to three-week lows following the weakest reading of Consumer Price Inflation in four years at 2.1% per year.

U.S. inflation data were due with the start of Tuesday's New York trading, with consensus forecasts for a three-month high of 1.3% per year.

Maintaining its inflation target at 2.0%, the Federal Reserve today starts a two-day meeting to decide U.S. monetary policy for the next 6 weeks, including a possible "taper" of $85 billion in monthly asset purchases.

"The bullion market is likely to continue to mark time ahead of the FOMC statement," says a note from global bank and London bullion market-maker HSBC. "However, post the FOMC meeting, we are more favorable...Speculators still hold significant short positions. The approaching year end may lead to a covering of spec shorts, which is price supportive in our view."

ETF trust fund holdings of gold have dropped 40% by value this year to $119 billion, says UK-based Barclays Capital.

The giant SPDR Gold Trust, the world's largest gold ETF, shed another 1% of its bullion holdings yesterday to reach 818 tonnes, the lowest level since January 2009.

Losing some 800 tonnes by weight in 2013, a further 100 tonnes of gold ETF holdings would become cash negative for investors who bought during the bull market at a price below $1,200, BarCap adds.

"Fed tapering and a general reduction in liquidity are the big game-changers in these markets," BarCap's commodities team says. "The risk is for further price downside ahead."

About the Author

Adrian Ash runs the research desk at BullionVault.