ETF Selling “Key Downside Risk” as Gold “Struggles in Sideways Resistance Range”

247Bull.com Editor: Our Keynesian central planners are trying to solve structural problems, such as enormous household and government debt, record unemployment and an ageing population, with massive money printing. The most likely end result remains a serious bout of inflation that will result in much higher gold prices and the destruction of a great deal of wealth. However, this is not a linear process. The investment case for gold remains as strong as it ever has, therefore investors need to take a long-term view and have patience.

Wholesalegold market prices fell to $1460 an ounce Tuesday morning, around ten Dollars lower than where it closed last week, as the FTSE in London ticked higher following yesterday’s UK bank holiday.

Other European stock markets also edged higher, while the Euro gained against the Dollar immediately following the release of better-than-expected German factory orders data.

Silver meantime fell below $23.70 an ounce, nearly 2% down on the week so far, while other industrial commodities also ticked lower.

“Gold is struggling against the important resistance range at $1469 [an ounce] and $1504.33,” says technical analysts at UBS.

“Support is at last week’s low of $1440.57, a break below this would pave the way to test $1424.63 and even$ 1405.02, the 38% and 50% retracements of the April-May recovery, respectively.”

“Our view is more sideways consolidation before another test to the downside,” agree technical analysts at bullion bank Scotia Mocatta, who also cite support at $1440.

On the New York Comex, the number of bearish short gold futures contracts held by smaller private traders, classified by the Commodity Futures Trading Commission as ‘Nonreportable’, exceeded the number of bullish long futures they held last Tuesday, according to weekly data published by the CFTC Friday. It is the first time this category of trader has been reported as holding more short than long contracts since February 2001.

So called Managed Money meantime – a category that includes hedge funds and other professional money managers – held slightly fewer short contracts than a week earlier, although at 65,224 contracts the aggregate short gold position of fund managers remains elevated compared to recent years.

Gold exchange traded funds saw their twelfth straight week of outflows last week, implying ongoing selling of their shares by investors, according to data from Bloomberg. The largest gold ETF, SPDR Gold Trust (ticker: GLD), saw its total gold holdings fall to a 44-month low of 1062.3 tonnes, compared to more than 1350 tonnes at the start of the year.

“We continue to believe exchange-traded product outflows remain a key downside risk [for the gold price] in the near term,” says Suki Cooper, precious metals strategist at Barclays Capital.

The Gold Fund run by hedge fund Paulson & Co., the GLD’s biggest stakeholder, ended April down 27%, Bloomberg reports, citing “two people familiar with the matter”. As well as GLD shares the fund also specializes in investing in gold mining equities.

“We expect the physical [bullion] demand to support the [gold] market,” say analysts at banking group ANZ.

“[But that] could prove difficult to maintain in the face of rallying equity markets,ETF outflows and speculative financial shorts… additionally, global inflation concerns that could support gold are benign. We expect to see a pick-up in prices through the second half of 2013, where gold should trade in the mid-high $1500 an ounce area.”

ANZ today cut its 2013 average gold price forecast to $1573 an ounce, forecasting an average price next year of $1648 an ounce.

“To suggest the gold price makes a lot of upside from here requires either a global crisis or a re-emergence of inflation,” said Gary Dugan, private bank Coutts’ chief investment officer for Asia and the Middle East, in an interview quoted by Bloomberg today.

Coutts now holds between 1% and 2% of its clients’ money in gold, down from 6-7% as recently as September, he said.

Gold imports to mainland China through Hong Kong more than doubled in March, net of exports, according to latest data from the Census & Statistics Bureau cited by Reuters.

The surge came as part of China’s 26% rise in first-quarter gold consumption, reported today by the China Gold Association.

Over in the West meantime, April’s gold price drop was met with increased demand for physical gold bullion from self-directed individual investors, according the Gold Investor Index from online precious metals exchange BullionVault, which hit a 16-month high at 58.6 last month.

Ben Traynor | BullionVault

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