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Gold Price Falls from 2-Week High as ETF Outflows Defy 'Safe Haven' Analysis

GOLD PRICES slipped from 2-week highs Monday in London after fresh outflows from gold-backed ETF investment funds defied analysts' claims of 'safe haven' demand even as domestic US and geopolitical concerns grow over Donald Trump's likely nomination as the Republican candidate for the 2024 presidential election, writes Atsuko Whitehouse at BullionVault.
Having risen almost $15 per Troy in late US Comex derivatives trade on Friday from that day's 3pm London benchmarking auction for physical bullion, the gold price in US Dollars today erased that move to the highest level since 7 February, back before wholesale dealing in China – the precious metal's No.1 consumer nation – shut down for the Chinese gold market's week-long Lunar New Year holiday.
The price of silver – which finds nearly 60% of its annual demand from industrial uses – fell harder than gold on Monday, dropping 1.9% towards 2-week lows at $22.51 per Troy ounce, the cheapest since China's bullion-market shutdown.
"Haven buying remains supportive [for gold prices] due to geopolitical risks in Ukraine and the Middle East," reckons Daniel Hynes, senior commodity strategist at Australasian bank ANZ.
Saturday marked the second anniversary of Vladimir Putin ordering Russian troops to invade Ukraine, while Israeli Prime Minister Benjamin Netanyahu announced he will convene his Cabinet early this week "to approve operational plans for action in Rafah", the southernmost city in Gaza, during the Muslim holy month of Ramadan beginning on 10 March.
The US and UK meantime struck 18 Houthi targets in Yemen in response to the recent surge in attacks by the Iran-backed militia group on ships in the Red Sea and Gulf of Aden.
Yet the giant SPDR Gold Trust (NYSEArca: GLD) last week saw its largest weekly outflow in nearly two months, cutting the quantity of gold needed to back its shares in issue by 10 tonnes to the smallest since the end of July 2019.
Chart of GLD and IAU gold-backed ETFs by tonnes of bullion backing. Source: BullionVault
No.2 gold ETF the iShares' product (NYSEArca: IAU) also shrank last week, liquidating nearly 1 tonne of backing as shareholders were net sellers of the stock and reaching its smallest size since the end of March 2020.
Together, the GLD and IAU gold ETFs have now erased all the growth seen since the Covid crisis began 4 years ago, a period including Russia's all-out invasion of Ukraine war starting in 2022, the mini-US banking crisis of spring 2023, and the ongoing Israeli invasion of Gaza following Hamas' 7th October atrocities and kidnaps.
"Geopolitical tensions, as well as speculation over the outcome of the US election, should keep gold well supported as a risk hedge," says Johathan Butler, head of business development at Japanese conglomerate Mitsubishi Corporation in his 2024 outlook.
But forecasting an average gold price of $1975 for 2024 – some $35 above last year's record high – Butler's prediction is the 3rd most bearish among the 25 analysts entering the latest price forecast competition held by precious metals trade body the London Bullion Market Association.
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"[Donald] Trump's second term would be dramatically more comprehensive and more aggressive and more determined to profoundly change the establishment," says former Republican House Speaker Newt Gingrich after the ex-President defeated Nikki Haley in her home state of South Carolina on Saturday to clinch the Republican 2024 presidential nomination in all but name after storming through the early voting states with wins in Iowa, New Hampshire and Nevada.
"A Trump presidency will inevitably and repeatedly cross lines that will cause conflict, often constitutional conflict," says John Bolton, a National Security Advisor to the former President during his first term.
Trump said earlier this month that he would "encourage" Russia to attack any Nato ally nation that didn't meet its obligation to spend at least 2% of GDP on defense, a target likely to be missed by 13 out of 31 members in 2024.
After imposing trade tariffs against China on more than $300 billion worth of goods during his first term, something the Biden administration has largely left in place, the former President also says he is now considering import duties of more than 60% targeting China to eliminate its "most favoured nation" status.
With silver prices falling harder than gold on Monday, that pushed up the Gold/Silver Ratio – which tracks the two formerly monetary metals' relative prices – up above 90, the highest value for 'safe haven' gold versus more 'industrial' silver in over 2 weeks.

Atsuko Whitehouse is the Head of the Japanese Market at BullionVault and the Editor of Japanese GoldNews.

See all articles by Atsuko Whitehouse here.

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