SPDR Gold Shares (GLD), the second-largest U.S.-listed ETF, with some $75 billion in assets, slid 1.5 percent on Wednesday, the most in more than three weeks, amid crosscurrents of sentiment that made the yellow metal vulnerable.
The move, which pulled GLD down to $166.50 a share, materialized in gold futures markets, and was possibly linked to selling by a U.S. bank, according to a report on ForexPros.com . No confirmation of the report’s claim was immediately available.
Stocks started the day sharply lower, but retraced all their losses and then some on news from Washington, D.C., that legislators may be making progress in solving issues related to the looming U.S. “fiscal cliff.” The Dow Jones industrial average was up more than 100 points, or 0.77 percent, to 12,977.26 ahead of the close.
Notwithstanding Wednesday’s sizable sell-off, demand for gold has been on the rise amid market volatility surrounding the fiscal cliff—shorthand for the expiration at the end of the year of Bush and Obama tax cuts as well as the implementation of spending cuts—which many fear may ruin the recovery.
Markets are also again on tenterhooks in connection with talks about debt restructuring in Europe, with both factors sending investors to the refuge of gold.
Total gold ETF holdings rose to 83.8 million troy ounces, or more than 2,600 tonnes, earlier this week—a fresh record high, according to several reports. GLD’s holdings hit a record 1,346 tonnes.
Gold prices slipped some 2 percent right off the bat in early trade, and ETFs like GLD—the largest physical bullion-backed ETF—and the iShares Gold Trust (IAU) tracked the futures move precisely, exactly as they should.
“GLD or gold ETFs in general, haven't been significant downside drivers of gold prices, as the holders of these funds tend to be long-term investors, not speculative traders,” Sumit Roy, analyst with HardAssetsInvestor, told IndexUniverse.
According to Roy, other factors were likely at play in Wednesday’s gold sell-off such as simple profit-taking after what has been a solid run-up in recent weeks.
Moreover, Roy pointed out that the slow progress in the negotiations to avert the so-called fiscal cliff has “dampened investor appetite for commodities in general.”
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