Gold Bars Flow Out of ETFs But 'Room for Risk Hedging' Before Fed, Debt Ceiling

GOLD BARS dealt in London’s wholesale market fell to new 3-week lows against a rising US Dollar on Tuesday, extended the drop on ETF investor selling as traders continued to bet on the Federal Reserve raising its key interest rate at next week’s March meeting.
So far in March the giant SPDR Gold Trust (NYSEArca:GLD) has now shrunk by 8.5 tonnes – equal to 1 day’s global gold mine output – as investor selling cuts the number of gold bars needed to back the ETF to a 1-month low beneath 837 tonnes.
Chart of the SPDR Gold Trust holdings of gold bullion
Silver prices also slipped Tuesday to new 3-week lows after the iShares Silver ETF (NYSEArca:SLV) shrank to its smallest size since last June, decreasing by some 9% since Donald Trump’s victory in the US presidential election of November.
After last week’s concerted ‘wake up’ call from a raft of Fed officials giving public speeches, betting on US interest-rate futures now sees a hike at next week’s meeting as 85% certain.
The balance of traders predict another hike in June or July, according to futures exchange the CME’s data, with another to follow in December or January.
That would still only take the Fed Funds rate to a ceiling of 1.5% however.
Last week’s US data put inflation in January at 1.9%, the closest it’s come to the Fed’s 2.0% target since 2012.
“Markets appear remarkably calm,” says analyst Jonathan Butler at Japanese conglomerate Mitsubishi, warning how “one factor that does not appear to be having much impact right now is the US debt ceiling.
“Congress needs to raise or suspend [it] before 15th March” – the day of the Fed’s mid-March decision on Dollar rates.
With Wall Street’s VIX volatility ‘fear gauge’ near 3-year lows, “Safe haven bids appear to have been largely priced out of gold,” Butler says.
“We believe there is room to re-build risk hedging in gold in anticipation of extreme, albeit low probability, market turmoil” should Trump and Congress fail to agree a new ceiling above the current $20 trillion.
Wholesale gold bar prices fell Tuesday morning to $1223 per ounce – a “support” level according to technical analyst Wang Tao at Reuters, with “the next support at $1213.”
“Support is at $1219,” counters bullion clearer and gold-bar market maker Scotia Mocatta’s New York team, pointing to the 38.2% retracement – a key Fibonacci level applied by some technical analysts – of the “Jan low-Feb high range.” 
Gold bars traded in China – where the People’s Bank today said it kept its bullion reserves unchanged for a 4th month running in February – extended their premium over London quotes to $15 per ounce on Tuesday.
The British Pound meantime fell to its lowest Dollar value in almost 2 months ahead of the UK’s unelected House of Lords voting on the ‘Article 50’ Bill, needed to fire the starting gun on 2 years of Brexit negotiations with Europe.
That buoyed the price of large gold bars in Sterling terms to £1004 per ounce – unchanged for the week so far.


This publication is for education purposes only and should not be considered either general of personal advice. It does not consider any particular person’s investment objectives, financial situation or needs. Accordingly, no recommendation (expressed or implied) or other information contained in this report should be acted upon without the appropriateness of that information having regard to those factors. You should assess whether or not the information contained herein is appropriate to your individual financial circumstances and goals before making an investment decision, or seek the help the of a licensed financial adviser. Performance is historical, performance may vary, past performance is not necessarily indicative of future performance. This report was produced in conjunction with ABC Bullion NSW.

Contact Us

Adelaide Store

Mezzanine Level
20 King William Street
Adelaide SA 5000
08 8223 2444
9:30am to 4:00pm (Mon. - Fri.)

Brisbane Store

Level 2
17-19 Mt. Gravatt-Capalaba Road
Upper Mt. Gravatt QLD 4122
07 3349 7965
10:00am to 4:00pm (Mon. - Fri.)