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Gold Caught in Tug-of-War Between ETF Selling, Coin Purchases


Gold prices have been stuck under $1,400 an ounce the past two weeks with lingering redemptions from bullion-backed ETFs apparently dampening any recovery in the precious metal despite strong physical demand for coins.

SPDR Gold Shares (GLD) has seen net outflows of about $16.4 billion year to date, according to IndexUniverse data.

Holdings in the world’s largest gold ETF fell to 1012.25 metric tons on Tuesday, their lowest since February 2009, according to Reuters. Gold edged higher on Wednesday, supported by strong physical demand, but gains are likely to be limited by persistent outflows from ETFs, according to the article. [Gold ETF Investors Face Higher Tax Bill]

Yet in the physical market, the U.S. Mint is on pace to sell 62,100 ounces of gold coins in May, 17% more than a year ago, Bloomberg News reports.

“In contrast to demand among institutional investors, who withdrew funds from the gold ETFs again yesterday, gold demand among retail investors thus remains extremely robust,” Daniel Briesemann, an analyst at Commerzbank, told Bloomberg.

Assets in gold exchange traded products total 2,154.2 metric tons, down 18% in this year, tumbling to the lowest since June 2011, as demand for haven assets declined amid an improving economic outlook, according to the report.

In Asia, the World Gold Council estimates gold demand in the second quarter will reach a quarterly record as bullion consumers in the region take possession of supply freed up by selling from ETFs, according to a separate report from Reuters.

“Even if ETF outflows continue in the United States, it is quite likely that the gold previously held in ETFs will find a ready market among Indian, Chinese and Middle Eastern consumers who are taking a long-term view on the prospects for gold,” said WGC Managing Director Marcus Grubb.

SPDR Gold Shares

Full disclosure: Tom Lydon’s clients own GLD.

The opinions and forecasts expressed herein are solely those of John Spence, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.