After plummeting last year in an extreme once-in-a-lifetime orgy of selling, GLD’s holdings have remained stable all throughout 2014.
That’s despite the fierce headwinds of the levitating stock markets continuing to howl, and the recent gold sentiment wasteland of the summer doldrums. GLD holdings' resiliency is very bullish.
As these lofty stock markets inevitably sell off, stock traders will return to GLD. Their necessary GLD-share buying to re-diversify unbalanced stock portfolios will add big marginal gold investment demand.
Alongside the decline in gold prices to levels not seen since January is a sharp fall in speculative long bets on the metal to levels not seen since January. According to CFTC data (as reflected in this great graphic from Reuters), pros are net long 51K gold contracts, nearly 100K less than 3 months ago.
Interesting action in the markets finds most doing a complete reversal of their knee-jerk response following the ECB rate cut and early part of the Draghi press conference (where he seemed to be laying the groundwork for QE).
The euro (FXE) has turned around more than 100 pips and gone green on the session. Germany's DAX (EWG) and London's FTSE (EWU) have turned lower, though the periphery (EWI, EWP) is hanging on to gains. The 10-year Treasury yield - which jumped to 2.64% - has returned to 2.59%. TLT -0.1%, TBT +0.2%
Showing little reaction in the immediate aftermath of the ECB action, gold is now moving noticeably higher at $1,253 per ounce. GLD +0.75%
Ignored as gold investors focus on the negative of late, says the team at Ned Davis, are real interest rates ... they've stopped going higher. Of any number of indicators, real interest rates historically have had the strongest correlation to gold prices.
As for weakening Chinese demand, purchases are still massive and the same trend of slowing occurred in early 2013. Other pluses: Reforms in India which could boost demand there and an ECB about to maybe go negative with rates or launch QE (policy meeting is tomorrow).
Bullish, but respectful of the price action, the team isn't recommending getting too long yet. "If you are looking for a short-term entry point, this does not appear to be it. Gold’s price action is poor, and sentiment is not pessimistic enough to take a contrary bet at $1246 per ounce."
Gold continues its worst week in months, with a morning tumble bringing the metal lower by $15 per ounce to $1,242, a level not seen since January. For the week, gold is down about $50 per ounce, or 4%.
To review, gold began the year at about $1,200 per ounce and surged to nearly $1,400 in mid-March. Last year's low set in June and again in December was just below $1,200.
Pick your excuse: Lower Chinese demand, lessening tensions in Ukraine, calm in financial markets ...
June gold fell to its lowest level in 15 weeks, settling 2% lower $1,265.50/oz., as "everywhere the investor looks, he sees nothing but a negative for gold today." Silver slipped 1.8% to end at $19.07/oz.
Also a factor is a round of stronger U.S. economic data showing a surprise increase in durable goods orders, improved housing data and rising consumer confidence, which is providing a lift to stocks; the expiration of June gold options also is adding to market volatility.
Precious metals miners are among the day's weakest stock performers: ABX -3.4%, GG -3.8%, NEM -3.1%, SLW -3.4%, KGC -3.8%, AUY -4.1%, AU -6.5%.
Chinese net gold imports from key conduit Hong Kong fell to 67.04 tons in April, down from 85.13 tons in March, and the lowest level since February 2013. A gold trader in Shanghai notes Chinese banks are flush with the metal, having imported a record 1.16K tons in 2013.
As China slows though, Morgan Stanley says policy changes in India could be supportive for gold, pointing to an easing of import rules by the country's central bank. The support is likely to be modest, says Morgan, as much of the "lost" demand from tighter rules was being met by unofficial imports. "The effective rise in gold imports will be much lower on a net basis."
Gold is off 1% in morning action to about its lowest level since early February at $1,278 per ounce. GLD -1.3%
Needing a "mini puke to $1,558 for fixing," Barclays trader (now ex-trader) Daniel Plunkett got it, nailing a bank client for $3.9M on a derivatives contract. Thus started the investigation into the bank's manipulation of the gold fix for which it was fined $44M today. The former trader also was handed down a fine and a banning from the industry.
Plunkett's actions that in 2012 came only one day after Barclays was fined a £290M over Libor manipulation which eventually led to the exit of CEO Bob Diamond.
Today's action brings further questions over the future of the decades-old gold fix. Deutsche has already resigned from the small group of lenders involved in the process. "If [the gold-fixing banks] want to continue to operate the fix in any way like they're doing they will need to be a lot more transparent about what's going on," says finance professor Brian Lucey.
China purchased 18% less gold in Q1 than it did one year ago, according to the World Gold Council, including a 55% slump in gold bar and coin purchases. The world's 2nd biggest buyer, India purchased 26% less than a year ago.
The selling wasn't just limited to emerging markets - physical demand for gold fell 52% Y/Y to a four-year low, according to the WGC. The flip-side: Investor selling (ETFs) essentially came to a halt. It's the opposite of last year where physical buyers stepped in to pick up the metal as investors unloaded.
John Paulson maintained his place as the biggest shareholder in the SPDR Gold Trust ETF (GLD) as of the end of Q1, keeping his 10.2M-share stake valued at nearly $1.3B while tinkering around the edges of some single-company bets in the mining sector.
Paulson cut his stake in Freeport McMoRan (FCX) by a third and in AngloGold Ashanti (AU) by ~10%, while holding steady on positions in Agnico Eagle Mines (AEM), Allied Nevada (ANV), Gold Fields (GFI), Iamgold (IAG) and Randgold Resources (GOLD).
His biggest new positions came in Verizon (VZ), buying ~8.75M shares worth $415.9M, and CBS, acquiring a ~4.47M-share stake worth $276.6M; he more than doubled holdings in (GM, $138M) and Cobalt Energy (CIE, $499M) while cutting his stake in Hess (HES) by 62%.
The Merk Gold Trust (OUNZ) - set to launch on Friday - is billing itself as a "deliverable gold ETF" in that it will allow individual investors to take delivery of the metal itself in exchange for shares. Bricks, coins, or bars are all options.
The SPDR Gold Trust (GLD) also allows for gold delivery, but a minimum basket of 100K shares is necessary. The Merk Gold Trust minimum share exchange will be about one hundred shares for one ounce of gold.
Generally upbeat economic comments from Janet Yellen make for a convenient excuse for sizable declines in precious metals today, but then how do we explain lower yields at both ends of the interest rate curve? At 2.62% before Yellen sat down in front of Congress, the 10-year Treasury yield is now down to 2.59%, and the December 2015 Eurodollar contract - as good a proxy for worry over rate hikes as exists - has gained five basis points (higher price means lower chance of hike).
Maybe more at work could be chatter about a de-escalation of tensions over Ukraine.
In other news, the China Gold Association reports the country's total Q1 gold consumption at 322.99 metric tons, up 0.8% from a year ago. Consumption of gold bars, however, fell about 44% to 67.954 tons.