Institutional investors looking for quick returns in gold were responsible for the substantial physical outflows from gold exchange-traded products during the third quarter, analyst Nicholas Brooks of fund provider ETF Securities said Wednesday.
ETF Securities, in a report, said the value of physical outflows from gold ETPs totaled $4.17 billion in the third quarter, compared with outflows of $18.54 billion in the second quarter.
"We saw the peak of outflows from gold ETPs in the second quarter, particularly in April, and I think those outflows were driven by panic selloff when we saw that short, sharp price drop around April 15," Brooks said in an interview.
Article continues below...
Request a free trial of Metals Daily - now available on Platts Market Center
Platts Metals Daily is available to all subscribers online on Platts Market Center, an interactive website that carries all of the Platts news, market commentaries, proprietary price assessments and archived content, as well as the daily PDF publication.
Platts Metals Daily offers prices, news and analysis for the aluminum, copper and molybdenum value chains. It contains hundreds of metals prices across base, minor, light and precious metals assessed by editors globally. This detailed service will help you monitor global events and quickly spot opportunities or potential pitfalls as well as bring you aluminum and copper price and news coverage. Daily prices and news for molybdenum are also covered to deliver critical insights.
"I think there were some leverage hedge funds in the US physical ETPs, and I think the price drop forced them to sell. Most of the outflows were from the GLD, the main, highly liquid ETP," Brooks said, referring to the SPDR Gold Trust, the world's largest gold ETP.
Since April however, outflows from gold ETPs have moderated with each succeeding month. "Although there were outflows at the end of September, they were far smaller than they were in April," Brooks said.
Though gold ETP outflows ticked higher in September at $1.19 billion compared with $673 million in August, most of the liquidation by hedge funds and other institutional investors in the second quarter is probably over, he added.
"I think some investors decided to take a little more out of gold on concerns about how gold prices might react if the [Federal Reserve] did decide to taper" its asset-purchasing program, he said.
After approaching the $1,200/oz level in late June, COMEX gold futures rallied above $1,400 by the end of August. But the market has since eased to the $1,325 area.
In late September, gold ETPs began seeing modest inflows from investors looking to hedge risk against a US government shutdown and potential rejection of the US debt ceiling increase. Brooks said.
Even so, most tactical investors looking for short-term returns on gold appear to be maintaining their negative outlook, though they are no longer actively reducing their gold positions, he said.
Instead, those large tactical, institutional investors appear to be looking at improvements in global economic growth and better US industrial data and favoring cyclical assets like equities.
"Their next move, assuming the US doesn't derail global growth over the next few weeks, will actually move toward slightly more laggard cyclical areas, like emerging market equities and more peripheral European equities," Brooks said.
"But I think that also includes commodities as an asset class, as well as some of the more cyclical metals," he added. "Gold doesn't perform particularly well in that environment."
--Nick Jonson, email@example.com
--Edited by Katharine Fraser, firstname.lastname@example.org