HardAssetsinvestor.com
We offer our latest analysis on the precious metals market.
Gold and silver were little changed over the past week, as the two metals fluctuated in their respective ranges of $1,350 to $1,400 and $22 to $23. We’ve been impressed by gold’s resilience in the face of continued liquidation by exchange-traded funds. Thus far in May, holdings have dropped by 3.9 million troy ounces (121 metric tons) after having fallen 5.6 million troy ounces (174.2 metric tons) in April.
As we have written about extensively, a sharp jump in physical gold demand has helped to offset sales by ETFs. According to Marcus Grubb, managing director at the World Gold Council, India’s imports of gold are expected to rise in the second quarter a whopping 200 percent from a year ago. China is also experiencing a sharp uptick in its imports, he said.
The question is, Can the surge in physical demand continue at this torrid pace, or are consumers in Asia merely pushing forward purchases that would have otherwise taken place later in the year?
Another pertinent question is, When will the ETF liquidation end? Selling will exhaust itself at some point (though there still remains 69.3 million troy ounces in such funds, a large portion of which could conceivably be liquidated), but the timing is crucial.
As it stands now, Asian buyers have essentially bought the gold from the ETF sellers. This is what Marcus Grubb speculated when he spoke to HardAssetsInvestor.com in a recent interview (see World Gold Council’s Grubb: ETF Sales Sending Gold From West To East, Mine Production Will Limit Downside).
Grubb said that “There is a possibility that ETFs have become a source of physical gold, and therefore the gold is going eastward. Because if investors are selling at a small premium in the West and getting out of their ETF positions, the gold can then be redeployed to meet this massive amount of consumer demand at a big premium in Asia.”
Price action will ultimately tell the tale. As we explained last week, prices must hold April’s $1,322 low in order to form a base and ultimately climb higher once again. Otherwise, a break of that level would usher in another round of selling and lead to much lower prices.
On the upside, bulls are hoping for a break of $1,400. A move above that level would expose a path toward $1,500 again.
ETF Holdings
Gold ETF holdings fell by 0.7 million troy ounces, or 1.05 percent, to 69.3 million. Silver holdings fell by 5.9 million troy ounces, or 0.95 percent, to 609.9 million. Platinum holdings rose by 51K, or 2.58 percent, to 2.02 million—a new record high. Palladium holdings fell by 9K, or 0.43 percent, to 2.15 million.
GOLD
