By Neils Christensen of Kitco News
(Kitco News) - Speculation that President-elect Donald Trump can boost the U.S. economy with a massive fiscal plan has helped push U.S. bond yields to their highest level in more than a year, the U.S. dollar to a 13-year high and gold reserve in exchange-traded funds to their lowest level five months.
Reserve data compiled by SPRD Gold Shares (NYSEARCA: GLD) shows that gold holdings in the world’s largest ETF totaled 885.04 tonnes as of Monday, the lowest level since June. November has been one of the worst months in terms of outflows in the last three years as GLD gold reserves have dropped by 57.55 tones, with the heaviest selling occurring after Trump’s Nov. 8 election win.
Taking the average gold price from the London Bullion Market PM Gold Price, the outflows seen in GLD total more than $2.3 billion in the past month.
However, despite the heavy selling since early November, gold reserves are still up for the year by 242.67 tonnes, given the unprecedented demand seen in the first half of the year.
Analysts at Commerzbank said in a report Tuesday that heaving ETF redemptions in the last 12 consecutive sessions has been the biggest drag on prices. Currently, gold prices are trading near their lowest levels since February and are down more than 6% since the start of the month. February Comex gold futures settled Tuesday at $1,190.80 an ounce, down 0.24% on the day.
Mike Dragosits, senior commodity strategist at TD Securities, said in a telephone interview with Kitco News that although prices have been dragged lower as investors focus on Trump’s economic policies and expected Federal Reserve interest rate hike on Dec 14, he thinks that a bottom could be in place, at least in the near-term.
“Even though we have broken below the key support level at $1,200 an ounce, we haven’t seen a lot of follow through on the downside,” he said. “I think at these levels, the bearish sentiment is overdone. I think a lot of the big selling has stopped and we could see prices stabilize.”
Dragosits added that his firm is expecting to see a bounce in gold, as it expects the Fed to be less aggressive than economists and markets are expecting.
“I think a 25-basis-point hike is already baked in but I don’t think the Fed is going to signal a very aggressive stance for 2017,” he said. “If the Fed is too hawkish in their expectations for 2017, they could risk hurting U.S. economic growth.”