Gold Remains Resilient; ETF Demand Grows Amidst Falling Prices – Saxo Bank

Although a stronger U.S. dollar will continue to provide headwinds for gold, with the risk of prices falling to $1,200 an ounce, one analyst said that there is strength and signs of tactical buying in the marketplace.
Ole Hansen, head of commodity strategy at Saxo Bank, noted in a report Tuesday that gold is holding up relatively well despite a much stronger U.S. dollar. Overnight the U.S. dollar index futures hit 97.26, their highest level in 11 weeks. At the same time, December Comex gold futures rallied to $1,264 an ounce and despite falling into negative territory Tuesday, prices are still above key support at $1,250 an ounce. December gold last traded at $1,257.5 an ounce, down 0.23% on the day.

Hansen said that he couldn’t rule out a drop to $1,200 in the near term but added that there are signs that investors are starting to bargain hunt at these lower levels. Hansen has been fairly bullish on gold and in a recent interview with Kitco News, Hansen said that he expects the bull market will remain intact as long as prices hold above $1,200 an ounce.

“So far we have seen a repeat of the May correction with tactical traders such as hedge funds reducing bullish bets while investors [are] using exchange-traded products [ETPs] once again buying into the weakness,” he said in his report. “Since the break below $1,300/oz, total holdings in ETPs have risen by 13 tonnes to 2,046.4 tonnes, the highest in more than three years.”

Hansen is joining a chorus of analysts, including the World Gold Council, who have noticed the new dichotomy between the futures market and gold ETPs. The World’s largest gold-backed ETF, SPDR Gold Shares (NYSEARCA: GLD), saw its reserve’s grow by more than 11 tonnes on Friday, as gold futures ended the week down, 5%, their biggest percentage decline in more than three years.

According to the data compiled by GLD, its gold reserves ended last week at 958.9 tonnes and remain near their highest levels last seen early July 2013.

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