2012-09-12

Gold in exchange-traded products (ETPs), increased this week to a record 72.49 million ounces

The gold price bounced back on Tuesday after yesterday’s modest sell-off as the U.S. dollar retreated against a composite of the world’s leading currencies this morning.  The spot price of gold rose as much as $14.18, or 0.8%, to $1,740.28 per ounce while the U.S. Dollar Index slipped 0.5% to 80.001.  The SPDR Gold Trust (GLD), the most liquid gold price proxy in the equity markets, advanced $1.24, or 0.7%, to $168.53 per share.

With the gold price surging higher in recent weeks, sentiment toward the yellow metal has risen as well.  According to Reuters, holdings of gold in exchange-traded products (ETPs), increased this week to a record 72.49 million ounces.  Furthermore, total holdings of gold have climbed by close to 3.5 million ounces on a year-to-date basis, of which 2.7 million ounces have moved into ETPs in just the past month.

Commenting on the rise in gold holdings, Edel Tully – a precious metals strategist at UBS – stated that “With a good portion of gold’s recent strength accounted for by the sharp increase in spec positioning, this certainly raises concerns on the longevity of the move, especially with fundamental buying virtually out of the picture…But the fact that the (ETP) camp – a relatively less-fickle group of buyers – has also been giving gold its vote of confidence offsets some of those worries.”
Looking ahead for the gold price, investors will be keeping a close eye on the German Federal Constitutional Court – which on Wednesday will provide its decision on the legality of the European Stability Mechanism (ESM) – the proposed permanent aid program designed to provide financial assistance to euro zone nations suffering from the sovereign debt crisis.

The attention will then shift on Thursday to the Federal Reserve, which will hold its next Federal Open Market Committee (FOMC) meeting.  While many economists expect the Ben Bernanke-led central bank to announce further monetary stimulus – likely in the form of a third round of quantitative easing (QE3) – the strong performance of the financial markets this year, as well as the ability of the U.S. economy to thus far avoid a recession, may keep the Fed on hold for at least the time being.

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