Gold ETCs shine amid fears over eurozone troubles

Gold exchange-traded commodities (ETCs) saw $500m of inflows in the past three weeks, as investors flocked to the precious metal over rising eurozone concerns.

ETF Securities said that gold ETCs saw $205m of inflows last week alone, bringing total inflows over the past three week period to US$503m, the largest three-week period of inflows since August 2011.

ETF Securities added that the increase reflects a combination of bargain hunting by longer-term strategic investors and hedging by investors fearful of worst case scenarios for the future of the euro amid fears of weakening US and Chinese economies.

However the announcement over the weekend that the eurozone has agreed to lend Spain €100bn to rescue its banking system caused most risk assets to rally Monday morning, with gold also benefiting. This week investor focus is likely to be on the follow-through on the announcement, with key details and the mechanics of the package still to be revealed.

Martin Arnolds, senior analyst at ETF Securities said: “Changes in the eurozone will impact markets across the board. We’ll get more clarity in the upcoming weeks with the Greek elections. Investors will also get more clarity once we find out the way in which the Spanish package will be implemented. Investors will be looking at how central banks support global financial activity and the eurozone’s activity, but all of this is better for gold. Investors are losing faith in central banks, and there will be more turbulence with the back of the issues in the eurozone.”

Italy’s debt auctions this week will also be a key focal point, to see if contagion has been halted by Spain’s rescue package. European industrial production and unemployment will also likely to be scrutinised as investors assess the strength of the wider European economy. Major upcoming signposts to monitor are the Greek elections on June 17th, the G20 summit on June 18/19 and the Federal Open Market Committee (FOMC) meeting statement on June 20th.

According to ETF Securities, gold futures have seen the largest jump in net long positioning in 4½ years. It said that bargain hunters are taking advantage of price weakness as an opportunity to accumulate net long futures positions at the fastest pace since December 2008, surging 28%. Despite the sharp rise, net longs still remain near end of 2008 lows.

Chinese imports of gold hit a record monthly high in April of 100 tonnes, according to the Hong Kong Census and Statistics department. The 65% month-on-month surge in gold imports comes at a fortuitous time for the physical gold market, given the recent decline in demand from India, due to a weak rupee.

Arnolds added: “Demand from India is likely to stay low in the next few months, and only picking up towards the end of the year. Until we see any improvements in the Indian economy, I don’t see any improvement in demand from India. In fact, we think that China’s demand for gold will surpass India’s demand by the end of this year. Rising Chinese incomes means that there is also rising demand for gold in the commercial sector.

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