Gold ETF Investors Call Pullback 'Excessive'

| About: ETFS Physical (SGOL)

Investors in gold exchange traded funds certainly aren’t abandoning ship while the precious metal climbs back above $1,600 an ounce following the recent sell-off as portfolio managers scrambled to raise cash.

Bullion holdings in global exchange traded products have risen to a new high “indicating longer-term investors view the recent gold price decline (as) excessive,” said Daniel Wills and Nicholas Brooks at ETF Securities in a weekly precious metals update.

“Global ETF investor positions have continued to trend up in both gold and silver, reflecting the fact that long term price supports such as negative real interest rates, currency debasement and sovereign/financial sector default risk, and rising emerging market/central bank demand remain embedded in the 2012 outlook,” they wrote.

Indeed, some analysts think silver ETFs are a buy with the white metal trading under $30 an ounce.

Although investors in precious metals ETFs are positing for a price rebound, speculative traders have scaled back positions in futures.

“Deleveraging leaves Comex gold and other precious metals’ speculative futures positioning at their lowest levels in two years,” ETF Securities pointed out. “Sustained deleveraging since September has left net speculative positions in gold, as well as silver and palladium at their lowest levels in over two years, removing a key headwind to a price recovery heading into 2012.”

From a technical perspective, the recent bounce has carried ETFS Physical Swiss Gold Shares (NYSEARCA:SGOL) back to its 200-day moving average.

“The gold price dropped below the key technical 200 day moving average last week, triggering selling by quant funds and short-term traders,” according to the report. “The gold price has been hit along with other commodity prices as the U.S. dollar has surged against a euro plagued by sovereign risk concerns and as investors have squared positions in the run-up to the end of a generally difficult year for investors.”

ETFS Physical Swiss Gold Shares

Click to enlarge

Click to enlarge

Disclosure: Tom Lydon’s clients own GLD.