Patience Thin for Gold Investors on Worst Price-Drop in 9 Months, ETF Liquidation

The PRICE of gold slipped again below $1600 per ounce on Thursday – a level first reached on the way up in July 2011 – to head for its worst one-month drop since May as world stock markets rose.

Broad commodity markets were little changed, while silver bullion crept back above $29 per ounce.

Down 4.5% in Dollar terms since the end of January at $1590 per ounce, gold for Euro investors was headed for a 1.8% monthly drop at €1212.50.

The Sterling price of investment gold was 0.9% lower at £1049.

“Patience with gold seems to be wearing thin amongst many investors,” says a note from BNP Paribas, “as illustrated by the low positioning in Comex gold futures and outflows from ETF [trust fund] holdings.”

Exchange-traded trust funds backed by gold – a new vehicle for cash-price exposure when launched a decade ago – have seen their assets shrink by a record 100 tonnes this month to hit a 5-month low of 2,508 tonnes according to Bloomberg.

“We have seen a massive reshuffling [in precious metals investment] in the past two months,” says Commerzbank’s daily note, pointing to the sharp rise in platinum and palladium ETF holdings so far in 2013.

“The gold price is unlikely to make any significant gains for as long as outflows from the gold ETFs continue. Nonetheless, we do not believe the current weakness in the price of gold to be sustainable.”

Turning bearish on gold late in 2012, however, Credit Suisse analysts today write that “For the gold price to perform better than we expect, there needs to be not just an end to liquidation…but a return to net buying by exchange-traded fund investors.

“It is notable, we think, that the liquidation has been spread across funds listed in the USA, London and Zurich.”

European stock markets meantime rose Thursday morning, after the S&P500 index in New York closed last night above 1500 points – a level reached in Jan. 2000 and July 2007, but with near-50% drops in between.

The Euro currency gained and then lost half-a-cent at $1.3100, but Italian bond yields eased back despite there being no progress in Rome building a new government after this week’s national elections.

“Inconclusive result is credit negative,” said the Moody’s rating agency yesterday, as anti-austerity comic Beppe Grille – winner of the popular vote, and speaking only to the BBC rather than Italian media – spurned the idea of dealing with either Democratic Party chief Pier Luigi Bersani or former prime minister Silvio Berlusconi.

“Italy cannot but follow the European path,” said Italian president Giorgio Napolitano this morning on a visit to Berlin, “taking on its responsibilities and making its share of sacrifices.”

Napolitano set a date of 15th March for “possible consultations” on a coalition solution to begin.

Noting how Pope Benedict has addressed “ethical concerns” about economics during his 8 years in the role, “Catholic Social Doctrine makes absolutely clear,” said European Central Bank president Mario Draghi yesterday, “that subsidiarity has to be paired with support.

“What binds these together is trust…Trust that each will put its own house in order – even if it is politically difficult.”

Pope Benedict was today set to be airlifted from the Vatican to the popes’ summer residence, where he will relinquish the Papal seal and retire as a monk.

Data revisions meantime showed Spain’s economy shrinking faster than first reported at the end of 2012, down by 1.9% in the final 3 months.

Spain’s inflation rate held at 2.8% this month, new data said. Across the 17-nation Eurozone however, consumer prices actually fell 1.0% in Jan. from Dec. according to the Eurostat agency.

Germany’s unemployment level fell this month to 6.9%.

“[In Spain] more than fifty percent of young people cannot currently find jobs,” said Draghi on Wednesday.

“But our answer – both to those who want [the ECB] to do less and to those who want us to do more – is the same: we will preserve price stability. This is our mandate.”

Spain’s giant Bankia group today reported a record €19 billion loss for 2012, when it also received €18bn in aid according to the BBC.

Speaking to the US House Financial Services Committee meantime, Fed chairman Ben Bernanke repeated his comments from Tuesday about the benefits of quantitative easing. But he also spoke at length about potential “exit strategies” from the policy.

Adrian Ash