Gold ETF inflows drop more
During the 2020 COVID-19 crisis gold was bought as a recession buster and as an asset to hold during low interest rates. The announcement of the vaccine on November 09 sent gold plunging lower and the largest single day loss in gold futures markets in 7 years. The outlook for gold is, in my view, still good for buyers. However, timing is the issue here and I am looking for a possible gold long into year end on strong seasonal demand from around December 26/27. One signal I am looking for is the end to outflows from gold etf's. Remember, during the crisis, the demand that dropped for Jewellery was picked up by ETF flows. So, this is why I am looking carefully at the ETF levels. Here is what they are saying.
1. According to a Bloomberg terminal piece from last week gold etf's has recently seen its longest run of declines since Trump's victory in 2016. Since October there have been $7.9 billion worth of outlfows.
2. ETF's have a large impact on prices. One week's flow in ETF's gives a good indication of what happens next in terms of gold spot prices. As buyers of physical metal they have greater impact on market tightness than the futures market according to Bloomberg
3. Since the invention of gold etf's in 2003 holdings moved in the same direction as price in every year bar one.
4. ETF flows tend to trend, so selling could last for months.
So, in summary, it is right to look at the ETF flows to see a hint at where gold is heading. The ETF sector has a lot to sell, the movement in ETF's show a propensity to trend, and they often have the largest impact on prices.
A slowing in gold etf selling heading into December end is the message I need to re-engage gold longs. Until then I am listening to the gold etf message.
