ETP Investors Still Selling Gold Despite Taper Delay And Weak USD
Saxo Bank | Oct 28, 2013 06:29AM ET
Gold rallied to a five-week high last week and in the process clawed back more than half of what was lost during the September to mid-October sell-off. The reasons behind the rally are well known with the Federal Reserve's taper delay (if there is a taper at all), a weaker dollar and falling bond yields all having lent support. As seen during previous rallies however, during the past year it is interesting to note that investors in exchange traded products once again used the rally to further reduce gold holdings, which according to Bloomberg fell by 12.7 tonnes last week to the lowest level since April 2010.
This reduction once again raises the question of how much further gold can rally at the moment? Near-term, the economic and political news front may offer some support as tapering is off the the table until March at least. Meanwhile, in the US the Democrats and the Republicans will soon have to return to the negotiation table to hammer out solutions to the US budget and debt ceiling. Both of these pending issues carry the risk of increasing uncertainty in markets.
The dollar's weakness, especially against the EUR, continues to lend some support but the cross has entered into overbought territory which raises the risk of profit taking. US 10-year government bond yields have stabilised just ahead of key support at 2.47 percent after falling from 3 percent over the past month and any recovery in rates from here may also weaken support.
Despite having broken the downtrend the six percent rally since October 14 has only resulted in continued reduction in ETP holdings.
Silver holdings recovered a bit last week following their biggest one-week reduction since May, as recorded in the previous week.
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