Sunday, 11 March 2012

Gold on Sunday night 11 March 2012

BullionVault's market report from Friday is the only outline I've read of what went on at the end of last week.

Over the weekend there was also this bit from Bloomberg on investors continuing to stock up on gold ETFs. The Bloomberg story linked to a chart which I assume is an aggregated measure of gold held by exchange traded products, it's called GLDTON.

The story said: "Investors in gold-backed exchange-traded products added to holdings for a seventh consecutive week, taking the total to a record 2,408.4 metric tons valued at $132.7 billion, data compiled by Bloomberg show.

Friday gold ETF trading on the London Stock Exchange saw PHAU buys and sells were level around £2 million (13-15,000 shares) while GBS buys were double sells £4 million versus £2 million but the biggest winner, as was the case on Thursday, was Source Physical gold ETF SGLD which saw £8 million buys versus £0.9 million sales - probably due to its lower annual management  fee of 0.29%.

Investors bought nearly ten times as many SGLD shares as they sold on Friday.

While PHAU shares bought and  sold were about level. 

This growth of Source may not be great news for the ongoing attempts to find a buyer for ETF Securities. One of the co-owners of Source ETFs is Goldman Sachs which is handling the sale of ETF Securities. 

The BullionVault story from Friday quoted Citigroup metals research analyst David Wilson: "It's difficult to see what would make gold push higher," before the nonfarms release knocked gold down $20.

Wilson said: "[It] seems odd because you would want to be Buying Gold if Europe is still a big risk and the US isn't but that is not how it's been trading."

It looks like I've got some basic homework to do on my understanding of how to interpret analysts or how to interpret the gold market because Wilson is saying buy gold when europe is a big risk and America is strong. I thought this combination had generally lead to the gold price falling due to the dollar strengthening and prospects of QE diminishing. Meanwhile when Europe is in crisis gold has generally been sold to cover other debts) But maybe he means that's when gold is cheap and a good buy... or I'm missing some obvious point.


  1. I partly agree with your last paragraph: gold has been trading with the Euro for at least six months. Euro strength = gold strength. This is because the Euro makes up such a large fraction of the USDX, and a weaker USDX generally means higher gold prices. It is also because gold is trading as a risk asset (as is the Euro, in some respects), so hedge funds will pour hot money into gold and the Euro at the same time on 'risk on' days, and pull it out of 'safe' assets such as the USD. On 'risk off' days, the opposite happens. So a sniff of trouble in the Eurozone sees 'risk off' in a big way, and both the Euro and gold fall.

    However, when there have been really impressive moves in gold recently, they have generally accompanied solid moves up in the USD. When that happens, it is because gold has reverted to its more traditional safe haven role. For example, if there is an air strike on Iran (a big 'if', actually, not that the gold bugs would let you believe that) then you will probably see oil up, gold up, and the USD up.

    This is why gold is such a fascinating trade. For bank stocks and miners, you have to buy on risk off days (when they're falling) and sell on risk on days (when they're rising). For US treasuries and tobacco stocks (for example) it's the opposite. But gold has two personalities, so there is the extra challenge of working out which one it's going to choose on any given day.

    Being a Gold ETF investor is therefore not for the faint hearted..! ;-)

  2. Hi Jeanne,

    at least now I am actually a gold ETF investor and own some gold ETF shares!

    For "risk on" versus "safe haven" gold buyers is there any way to estimate which events and investors are more influential?

    Supposing there were two simultaneous crises of similar severity - one which involved Iran and oil and another involving the eurozone - which one would influence the largest number of gold investors and what would it influence them to do?

    Would the investors who owned gold as a "risk on" asset hang on to it rather than shifting into USD?

    Or would the simultaneous hiccup of equal severity and uncertainty in the eurozone drive "risk on" gold investors back to their habit of selling gold in a eurozone crisis?

    And if they did sell would they outnumber gold buyers looking for safety in an Iran crisis?

    I suppose another factor is whether safe haven gold buyers would remain wary of it because they believe the price is more dependent on what is going on in the eurozone than Iran....

    Also, if/when investors get properly worried about US debt - as we are told they will after the US election - it should boost the gold prices. But could the threat of another eurozone crisis shock keep gold's safe haven status in doubt even in that scenario?

    Lots of questions -I'm still on the steep part of the learning curve here. Really though thanks for reading the post and for your comments...