Gold ETF sales continue in May

Gold sales through exchange-traded products came to $6 billion last month as investors put more money into stocks and bonds, ETFGI Ltd. said.

The outflow for gold in May pushed the total for the first five months this year to $24.2 billion, compared with gains of $3.2 billion for the same period last year, according to data provided by e-mail from London-based ETFGI. Commodity outflows were $6.7 billion last month compared with $25 billion added to stock ETPs and $3.1 billion in fixed income.

Gold outflows came on top of an $8.8 billion cut in April when the metal slid to a two-year low and entered a bear market. BlackRock Inc. said the April gold sales were a record. Investors cut gold-backed ETP assets that reached an all-time high in December as faith in the metal as a store of value waned after inflation failed to accelerate and confidence mounted that the U.S. economy was improving.

Gold prices that rallied for 12 years in the best run in at least nine decades are down 16 percent this year while U.S. equities climbed to a record.

The S&P GSCI gauge of 24 commodities dropped 2.7 percent this year and the MSCI All-Country World Index of equities gained 6.9 percent. Treasuries are down 1.2 percent, a Bank of America Corp. index shows.

Commodity ETP outflows last month were down from $9.4 billion in April, according to ETFGI, which is managed by Deborah Fuhr, formerly of BlackRock. All ETP assets climbed to a record $2.14 trillion last month, ETFGI said.


Gold Price Moves Are Really About US Home Prices

Everyone’s got a different theory for what’s been moving gold prices in recent years.  Many attribute it to the Fed’s balance sheet. Some attribute it to the debt ceiling. Others point to ETFs.

In his latest note to clients, Bank of America Merrill Lynch‘s Michael Hartnett points to U.S. home prices, which saw its bottom when gold prices topped.

Here’s Hartnett:

But the belly of the last deflationary beast was, is and remains real estate. And thus it was the trough in US real estate in late-2011 that has proved the true game-changer for financial markets and the real economy. The trough in real estate instantly caused rotation from safe havens to more leveraged, risky assets, a trend that as been gaining traction for the past year and a half. For example, the peak in gold prices (the world’s favorite “tail risk” hedge), coincided with the trough in US home prices (Chart). Indeed, our private client base has reduced their effective gold holdings by 30% since late-2011.

And in 2013, the momentum in US real estate is causing double-digit house price
gains, investors are reaching for any form of exposure to the asset class (Fannie Mae preferred shares have quadrupled in the past 12 weeks), while gold prices and other safe havens come under further selling pressure (our commodity strategists revised down their 2013 average gold price forecast (to $1,478/oz from $1,680/oz).

Here’s Hartnett’s chart:

Gold Bar “Supply Constraints” In Singapore Sees Record Premiums

Gold Bar “Supply Constraints” In Singapore Sees Record Premiums

Gold rose to a one-week high, as the dollar and stocks retreated after another 5% plunge in Japan’s Nikkei. Silver, platinum and palladium advanced also.

Physical gold demand remains robust internationally and supply issues in Singapore have led to premiums reaching a record high there.

Gold Spot $/oz, Daily, 3 Year – (Bloomberg)

Some of the buying on futures markets may be shorts being forced to cover their record short position. The COT (Commitments of Traders) data clearly shows that there is the strong possibility of a significant squeeze of speculators short gold. This could be a catalyst to propel gold higher.

Cross Currency Table – (Bloomberg)

Traders and speculators are watching the $1,413/oz resistance level. A daily close above this level will likely trigger the beginnings of a short squeeze.

Holdings in the largest bullion-backed exchange-traded product expanded yesterday for the first time since May 9.

Strong premiums for gold bars in Asia show that jewellers and investors are busy buying bullion on this dip. In Singapore, Reuters reports that “supply constraints” have sent premiums to “all time highs” at $7 to spot London prices.

Animal spirits are returning to the gold market in the ‘Land of the Dragon’ in this the ‘Year of the Snake’.

The volume for the Shanghai Gold Exchange’s benchmark cash contract surged to 19,599 kilograms yesterday from 15,641 kilograms the day before. In two days the volumes have nearly doubled and surged from 10,094 kilograms to 19,599 or 94%.

Nikkei Index, Daily, 1 Year – (Bloomberg)

Animal spirits have been greatly in evidence in global equity markets for many months now with abnormally strong gains seen in many surging markets. This is despite a very uncertain global economic outlook and great uncertainty regarding corporate earnings in the coming months.

With many stock markets overvalued on a host of benchmarks, there is the real risk of a material correction in the U.S. and other markets and this should lead to renewed diversification into gold.

It will also lead to renewed safe haven demand if other markets see stocks plummet as has been seen in Japan in recent days.

S&P 500 Index, Daily, 4 Year – (Bloomberg)

The 17% correction seen in the Nikkei in the last week alone, looks likely in the coming months in other markets which are increasingly being driven by liquidity, debt and margined speculation rather than value investing.

The rotatation out of gold and into stocks seen in recent months could reverse very quickly and investors may just as quickly rotate back into gold in order to hedge significant macroeconomic risks.