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Gold Rally Triggers Additional Reductions In ETP Eoldings

BySaxo Bank
AuthorSaxo Bank
Published 01/13/2014, 06:17 AM
Updated 03/19/2019, 04:00 AM

The weaker-than-expected US payroll numbers on Friday gave precious metals an additional lift and the sector remains the strongest performer so far this January. Gold moved back into its area of resistance of 1,250-1,268 USD/oz, but the failure to break decisively through once the right environment presented itself highlights the continued lukewarm feelings that many have towards the metal which lost 30 percent in value last year.

Exchange Traded Product flows remained negative for a ninth consecutive week although last week's reduction of just 9.4 tons were the smallest reduction seen since the week of November 15. Total known holdings, according to Bloomberg, now stands at 1,746.2 metric tons, the lowest reading since October 2009.

So far the rally has primarily been driven by strong physical demand from China ahead of its Lunar New Year celebrations at the end of January and short covering by speculative traders in the futures market. In order for the bulls to gain the upper hand, traders need to see that the market is not just being driven by speculative short covering but also conclude that investor money has begun to flow back into the market. This is the reason that, although relatively small in size, a positive flow into ETPs is needed to give the market the confidence required to take gold higher. Until such time the risk in the market is still that the recent lows can be revisited once Chinese demand begins to ease as Lunar New Year approaches.
ETP
Chart 1
Silver holdings dropped for a third week in a row and has now declined in all but one of the previous nine weeks.
Chart 2

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