Gold ETF outflows resume

Yesterday the gold price settled higher for the first time in five sessions in a session that saw it trade in a wide range, however it did not manage to maintain the session high of $1,304. 50. Overnight the price of gold has fallen to a one-week low thanks to a strengthening in the dollar, despite increasing tensions in Ukraine.

The silver price also reached a recent high, climbing by 1.9% yesterday to before falling to $19.426/oz.

Outflows from gold-backed ETFs and stronger equities hurt the gold-price yesterday, undoing any safe-haven price climbs. For the first time since May 2 the SPDR Gold Trust reported outflows, of 2.39 tonnes. ETF holdings are seen as an indicator of Western gold investor sentiment and ongoing outflows suggest there is not enough bullish demand outside of the East, to push prices back above $1,315 at the moment.

Some strength in gold prices was found not only on the back of tensions in Ukraine but also thanks to rumours that gold import restrictions may be eased in India.

Yesterday was the last day of elections in India, it is thought that the National Democratic Alliance may hit a home-run. Should this be the case then there is likely to be an opening up to gold imports and/or an easing of restrictions and import duties.

As we have explained several times before, gold price action in the run up to and during times of military action can be tricky to forecast. Gold has risen 7.5% so far this year, mainly thanks to developments between Ukraine, Russia and the West. However once war has begun the price of gold will (as shown in recent history) return to levels seen previous to tensions escalating.

However, in the case of this war much of the concern is not so much to do with the impact of military action on economies, but instead the indirect impact by way of sanctions being placed on Russia. Investors and speculators are now asking several questions in regard to what sanctions will be imposed on Russia, how it will affect supplies to and relations with Europe and how long the crisis will go on for.

BNP Paribas has revised up its gold forecast for 2014, to $1,255 an ounce from $1,095. It cites incremental buying in Exchange Traded Funds, resilient Eastern gold demand and geopolitical tensions in Ukraine as bullish factors. It does however draw on ‘price erosion’ as it believes market participants are now focussed on the first rate-hike, following the stopping of asset-purchases by the end of this year.

About the Author
Jan Skoyles

Jan Skoyles is Head of Research at The Real Asset Company, a platform for secure and efficient gold investment. Her work and views are now featured on a range of sites including Kitco, GATA, and The Telegraph. She has appeared on news channels including Russia Today to discuss the gold price and gold investing. You can keep up with Jan's commentary by subscribing to our RSS feed Gold Investment News.

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