Gold Nose-Dives Below $1,500

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April 12, 2013
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There is no end in sight to the gold ETF liquidation.

 

[This article originally appeared on HardAssetsInvestor.com and is republished here with permission.]

 

Gold prices crumbled today, falling $75, or 4.8 percent, to last stand near $1,485—the lowest level since July 2011. Since peaking in September 2011 above $1,921, gold prices have essentially been range-bound between $1,525 and $1,800. Today's move pushes gold out of that range; thus, from a technical perspective, the yellow metal is considered to have "broken down."

GOLD (2-Year Chart)

Gold Technicals

But there are fundamental factors for gold's dismal performance as well, not the least of which is the sudden evaporation in investor demand—Case in point are the movements we've seen in gold ETF holdings.

Gold ETF Holdings

Gold ETF Holdings

Holdings of gold in exchange-traded funds plunged nearly 900,000 ounces over the past week. Holdings are now down a whopping 7.2 million ounces (223 metric tons) since the start of the year, nearly wiping out the 9-million-ounce increase during 2012.

These are significant numbers. For context, 7.2 million ounces represents almost 5 percent of annual global gold demand. Moreover, there is plenty of gold still tied up in exchange-traded funds that can be liquidated with the mere click of a button. As prices continue to plummet, jittery investors could throw in the towel, fearing an even-more-protracted decline.

It’s the vicious cycle we’ve described in the past: As ETF investors liquidate, that pressures prices. As prices decline, that spurs another round of liquidation by fearful investors.

There’s no telling when this cycle will end, but it’s clear that the bullish fundamentals that supported prices in recent years—ultra-loose monetary policies by central banks, including quantitative easing—are not doing so currently.

 

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ETF DAILY DATA

The oil and gas ETF saw net inflows of $135 million on Wednesday, April 27.

The top five issuers all saw net inflows into their exchange-traded products on Wednesday, April 27.

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