Gold Slips As ETF Holdings Hit Lowest Since Sept 2009

Gold slipped back into negative territory on Tuesday after bargain hunting tapered off, while daily outflows from exchange-traded funds highlighted investors’ lack of confidence in the precious metal.

Although gold’s appeal as a hedge against inflation may be burnished by hopes the U.S. Federal Reserve will keep its bond-buying programme, surging stock markets could tempt investors to ditch bullion and shift to equities.

Gold fell $4.84 an ounce to $1,470.95 by 0313 GMT. It had gained slightly on Monday on expectations the Fed would maintain its pace of bond buying unchanged at $85 billion a month following weaker-than-expected U.S. growth.

“From a technical point of view, although the rebound has been relatively solid, it appears to be a more sustained correction of the fall that we saw from late March, rather than a turn in trend,” said Tim Riddell, head of ANZ Global Markets Research, Asia.

“Really what we need to see is a series of closes above $1,505 to take the pressure off,” said Riddell, adding that a drop below $1,435 could trigger a favoured technical pullback to $1,300 and potentially even as deep as $1,245.

U.S. gold for June delivery stood at $1,470.60 an ounce, up $3.20.

Cash and U.S. gold futures sank to around $1,321 on April 16, their lowest in more than two years, after a drop below $1,500 led to a sell-off that prompted investors to slash holdings of exchange-traded funds.

Asian shares edged higher on Tuesday, the day after the S&P 500 index ended at an all-time high, as hopes for political stability in Italy and expectations for global central banks to continue their growth-supporting monetary stimulus bolstered investor risk appetite.

The SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, said its holdings fell 0.22 per cent to 1,080.64 tonnes on Monday from 1,083.05 tonnes on Friday to their lowest since September 2009.

A weak March employment report in the United States and other softer signals from the economy seemed to kill off expectations the Fed could taper the pace of bond buying in coming months.

The Fed is currently buying longer-dated U.S. Treasuries and mortgage-backed bonds every month and is expected to vote to keep doing so at the conclusion of a two-day policy-setting meeting on Wednesday.

Fears that central banks’ money-printing to buy assets will stoke inflation have been a key driver in boosting gold, which rallied to an 11-month high in October last year after the Fed announced its third round of aggressive economic stimulus.

In the physical market, buying subsided after a recent rush, but nearby supply of gold bars, coins and nuggets was tight. Premiums for gold bars in Hong Kong stayed this week at their highest level since October 2011, at up to $3 an ounce to spot London prices.

“The problem in the market is the tight physical supply, but physical buying has slowed down. It will take time to refine the metal,” said a dealer in Hong Kong.

Gold prices are expected to end 2013 at $1,450 to $1,550 per ounce, only partly recovering from the recent selloff that shook investor confidence after 12 unbroken years of gains, a Reuters poll showed.