Gold And Silver Reductions Accelerated In December

Holdings in exchange traded products backed by gold completed a 12-month sequence of reductions in December as total holdings fell by the most since June (Bloomberg). The reduction during the second half of 2013 was 283 tons compared with 586 tons during the first. The price of gold, however, managed to finish unchanged for the second half of 2013 with physical demand somewhat offsetting this continued reduction in investment demand. Silver holdings also dropped by the most since June despite being mostly rangebound during the month of December.

An almost non-stop period of selling in 2013 accelerated into December despite the relative calm price action seen during this time. The worst annual sell-off since 1981 following a 12-year rally yielded some additional position squaring before the year came to a close. Only six out of 52 weeks saw net buying during 2013 so the behaviour of investors will be watched very close as 2014 begins for any signs of whether the relatively calm price action may attract some fresh investment into yellow metal, either through futures or exchange traded products.

Investment holdings of silver dropped by the most since June during December. The second half reduction totalled 283 tons against a price rally of 5.3 percent compared with 587 tons during the first where the price dropped by 39 pecent. Just like gold the reduction was in response to the changing investment outlook with stocks continuing to offer better opportunities. The improved growth outlook which has yielded a strong rally in copper during December and may, if carried over into 2014, offer some support for silver and its crowd of loyal investors who have generally maintained their exposure despite it being one of the worst commodity investments in 2013.