TURNING TIDE: Money flows into gold ETFs first time in 6 weeks

The gold price regained the psychologically important $1,200 an ounce level on Friday, recovering from a more than 3-year low hit yesterday following a decision by the US Federal Reserve to make cuts to its economic stimulus program.

The Fed’s decision to slow down its money-printing engine boosted the dollar and sparked a frenzy for US stocks that hit new all-time highs again today.

All the money flowing into bonds and equities and yield-producing assets have led to record-breaking withdrawals from commodities this year, particularly precious metals assets, but today there was a flicker of a turnaround, or at least a bottom, in the market.

Holdings of SPDR Gold Shares (NYSEARCA: GLD) – the world’s largest gold ETF by a wide margin – on Friday increased for the first time in more than six weeks.

In a classic case of bargain hunting, investors bought a net 5.4 tonnes of gold on Friday, the first increase in tonnage held in trust by GLD since the 2.1 tonnes inflow recorded on November 5, the only day that month that buyers topped sellers.

Liquidation of gold-backed ETFs have been cited as a major factor in the fall of the gold price this year and most analysts expected outflows to continue into 2014 and drive the price down further, marking Friday’s positive as something of a surprise.

December’s net redemptions still tally almost 30 tonnes and year-to-date outflows are more than 530 tonnes. Holdings in GLD on Friday climbed to 814.1 tonnes or 26.1 million ounces, still down almost 40% from the start of the year.

There has been an almost non-stop exit since gold ETF holdings peaked a year ago, but April’s $200 drop in the price over two trading sessions shocked investors and turned a steady stream into a flood.

The world’s physical gold trusts have experienced net redemptions of more than 800 tonnes collectively and a close to $80 billion depreciation in 2013.

The price of gold is down some 28% in 2013 and is set to break its 12-year bull run that took it from around $270 an ounce at the end of 2000 to a record high above $1,900 in September 2011.

Gold’s $480 an ounce fall in 2013 is the worst performance since 1980, when the yellow metal hit $850 an ounce in January only to lose $200 in a matter of days.

At $2,400 an ounce in inflation adjusted terms 1980’s gold price still hold the all-time record. In that year the US inflation rate peaked at just under 15%, versus near record lows of 1.2% today.