Investors who put more than $3 billion into gold exchange traded funds in November have been blindsided by the meltdown in precious metals this month.
Gold lost about $90 an ounce on Wednesday and fell below its 200-day moving average, where it hasn’t been since 2009. The precious metal also crashed through $1,600 an ounce after ETF bullion holdings rose to a record high last month.
Earlier this week, Reuters reported that gold exchange traded products held about $116 billion worth of bullion. Gold ETF investors are perceived to have a long-term outlook so they’re not expected to pull out at the first sign of trouble, according to the report.
Despite the big November inflows to gold ETFs, some analysts say flows have moderated over the past three years, suggesting concerns that gold may be overvalued, the Financial Times reported.
“Unlike previous periods of risk aversion that occurred in 2009 and 2010, this time U.S. dollar strength is not being accompanied by strong inflows into physically backed gold ETFs,” said Michael Lewis, commodity strategist at Deutsche Bank, in the FT report.
There is also speculation that some investors are selling gold to cover losses elsewhere and raise cash. Gold prices have weakened lately despite growing worries over the eurozone debt crisis.
“Thinning liquidity, relatively high levels of speculative overhang in gold versus some other precious metals, and a weakening euro (and) strengthening U.S. dollar could make for choppy gold trade in the near term, although it still looks well placed to capitalize on continued debt default concerns in the longer term,” ETF Securities analysts said in a weekly update.
ETFS Physical Swiss Gold Shares ETF (SGOL)
Click to enlarge