Gold News

Gold ETFs Shrink, Defying 'Safe Haven Flows' as Equities Jump Despite Hamas-Israel War

The PRICE of GOLD extended yesterday's jump to 1-week highs overnight Tuesday, peaking at $1865 per Troy ounce before losing $10 in London trade after the largest gold ETF investment funds shrank yet again despite the sudden violence and worsening tensions in the Middle East.
Global stock markets rose, reaching 2-week highs on the MSCI World Index, even as terrorist group Hamas again threatened to attack civilians in southern Israel after killing 1,000 people and kidnapping at least 100 others on Saturday.
Israel in response continued today to bomb Gaza, where the ministry of health says 765 Palestinians have died since the weekend, with 4,000 injured. 
"We kiss the hands of those who planned the attack on the Zionist regime," said the militant Islamist leadership of Iran today, but it denied any involvement in Hamas' atrocities. 
"Money has flowed into safe haven assets including gold," London freesheet City AM quotes one retail stockbroker's spokesperson.
Yet both of the world's largest gold-backed ETF trust funds shrank Monday, with the GLD losing another 0.5% in size as the IAU dropped 0.1% on net selling by shareholders.
Now 1.3% and 0.8% smaller already this month so far, both the GLD and IAU gold ETFs had also shrunk yet again across September, with gold ETFs as a whole worldwide shedding the most bullion in 12 months according to data compiled and published today by the mining industry's World Gold Council.
Chart of gold ETF backing in tonnes, monthly change vs. Dollar gold price. Source: World Gold Council
"Much of [early Monday's] overnight spikes in traditional war proxies – oil and gold – did not extend much into the US session," says a strategy note from Swiss bullion refiners and finance group MKS Pamp.
"Both markets tend to have short-lived responses to renewed geopolitical risks...[but] developments are still very fluid [and] at the margin escalating."
Oil today steadied around $88 per barrel of Brent crude, some $5 higher from last week's 5-week low but over 8% beneath late-September's 10-month peak.
"From $150 oil to no impact at all," says a headline at MarketWatch about the Hamas-Israel war, "trying" – in its own words – "to map out all the possibilities from [Saturday's] surprise attack."
Like the size of gold ETFs the GLD and IAU, trading volume in Comex gold futures and options also retreated as gold prices rose to 1-week highs yesterday, down by 1/8th from Friday as the US bond market stayed shut for a public holiday.
US Treasury bond prices today rose sharply as the market re-opened, briefly pushing the yield offered to new buyers of 2-year debt down to 4.90%, the lowest in a month, before rising back above 5.00%.
That level – some 0.15 percentage points beneath last Tuesday's fresh multi-year peak – was the highest since June 2007, eve of the global financial crisis, when reached in March this year.
Those falling interest rates today saw the Dollar drop to its cheapest against the rest of the world's major currencies so far in October, down 1.5% from last Tuesday's 11-month high.
"If long-term interest rates remain elevated," said Dallas Fed president Lorie Logan – a voting member of the US central bank's policy committee until 2024 – in a speech Monday, "there may be less need to raise the fed funds rate.
"However, to the extent that strength in the economy is behind the increase in long-term interest rates, the FOMC may need to do more."
"I will remain cognizant of the tightening in financial conditions through higher bond yields," said Philip Jefferson, vice-chair of the Fed's Board of Governors and a voting member until 2027, speaking at the same business event in Texas.
"We have to balance the risk of not having tightened enough against the risk of policy being too restrictive."
Fewer than 1-in-5 bets on November's Fed decision now see the US central bank raising its target for overnight Dollar interest rates, down from more than 1-in-4 a week ago and almost 1-in-2 this time last month according to derivatives exchange the CME's FedWatch tool.
Betting on next spring's Fed decisions meantime foresees a cut in June if not May, with the consensus outlook for mid-2024's effective Fed Funds rate – currently at 5.33% per annum – dropping from 5.30% to 5.15% over the last week.
The UK gold price in Pounds per ounce today peaked at £1523 before dropping back to £1515, while Euro gold prices fell €10 from a new 1-week high at €1763.
Priced in the Dollar, silver prices meanwhile rose but failed to re-touch yesterday's 1-week peak above $22 per Troy ounce before dropping back 25 cents.
Silver prices in Shanghai traded more than 10.6% above that level, continuing to suggest very strong demand versus supply in China.
The incentive for gold imports to China edged back in contrast, but held at historically high levels of 3.0% – equal to $55 per ounce – as Shanghai's Yuan price fell to the cheapest since end-June beneath ¥449 per gram.

Adrian Ash

Adrian Ash, BullionVault Gold News

Adrian Ash is director of research at BullionVault, the world-leading physical gold, silver and platinum market for private investors online. Formerly head of editorial at London's top publisher of private-investment advice, he was City correspondent for The Daily Reckoning from 2003 to 2008, and he has now been researching and writing daily analysis of precious metals and the wider financial markets for over 20 years. A frequent guest on BBC radio and television, Adrian is regularly quoted by the Financial Times, MarketWatch and many other respected news outlets, and his views from inside the bullion market have been sought by the Economist magazine, CNBC, Bloomberg, Germany's Handelsblatt and FAZ, plus Italy's Il Sole 24 Ore.

See the full archive of Adrian Ash articles on GoldNews.

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