WSJ piece mentions latest gold ETF physical "holdings" ..............................................
April 26, 2008
Gold Futures Lose Their Shine
By MATT WHITTAKER
Gold investors, including those in the recently hot exchange-traded-fund market, are pulling out of the metal and returning to stocks as some see the U.S. economic outlook brightening and the dollar putting in a bottom.
But some see inflation putting the mojo back in the metal later this year after this selling bout subsides. Gold prices have fallen more than 13% from their all-time peak of $1,014.60, set by the front-month contract on the Comex division of the New York Mercantile Exchange March 17.
Friday, nearby April gold rose 40 cents to $887.20 a troy ounce, and was down 2.7% for the week.
"It has lost some steam," said Bill O'Neill, a principal with Logic Advisors. "There is some asset reallocation going on. We are seeing some movement out of commodities and mainly into equities."
Gold's safe-haven sparkle is fading as some see the worst of the liquidity crisis as over, said Mr. O'Neill, who expects gold to be in a broad range from $825 to $1,000. Support should come in if there are renewed problems in the financial sector and if oil prices continue rising.
"The real crisis mentality has lessened," Mr. O'Neill said.
As financial-market tensions ease and the U.S. dollar climbs, gold is looking tired.
For example, gold responded with only modest gains when the euro and crude oil hit record highs Tuesday, moves that likely would have sent the metal soaring only a few weeks ago.
Investors have also been selling their holdings in the world's largest physically backed gold exchange-traded fund, with this week showing a 7.8% drop in the tonnage held by streetTracks Gold Shares.
According to the latest data available during Friday's trading session, from Monday to Thursday the fund's gold holdings fell from 641.82 metric tons -- roughly where it had plateaued since late last month -- to 591.19 metric tons.
Physically backed gold exchange-traded funds have been popular with investors recently because they operate similarly to stocks, giving investors exposure to commodities without having to trade futures or options.
As the worlds largest, physically backed gold ETF, streetTRACKS has amassed more tons of gold than some countries.
In such a gold ETF, investors buy shares that represent a certain amount of gold that the fund then buys on the market and stores. When investors sell their shares, the fund sells the physical gold into the market.
The selling of gold overall is temporary, said Larry Bilello, managing director of B&C Trading. "This pause will shake out some weak longs. The dollar was certainly oversold and due to be sold out."
But gold is a harbinger of inflation, and analysts say that after hitting support around $850 to $860, the metal will likely then trade sideways before moving higher toward the end of the year as inflation again rears its head.
Mr. Bilello sees $1,100 gold during the last quarter of this year or the first quarter of 2009.
In the "very near term," gold will face some downward pressure from the Federal Reserve not being as aggressive in cutting interest rates -- moves that have pressured the dollar and strengthened gold as an alternative currency, said Bart Melek, global commodity strategist with BMO Capital Markets.
The market expects the Fed will cut rates 0.25 percentage point on Wednesday and then take a pause, Mr. Melek said.
But he doesn't expect the Fed to hold there indefinitely.
"We will likely see more cuts from the Fed," Mr. Melek said. "At the same time inflation is still a problem. The use of gold as an inflation hedge will be resurrected."
In other commodity markets:
CRUDE OIL: Futures ended higher, flirting with $120 a barrel, on revived tensions between the U.S. and Iran and on the prospect of disruptions to North Sea oil output. It is anticipated that global supplies will be curtailed by the shutdown of the Forties oil pipeline in the North Sea and by a strike and an attack on oil facilities in Nigeria. An incident between a vessel chartered by the U.S. military and two speedboats believed to be Iranian took crude to an intraday high of $119.55. Light, sweet crude for June delivery settled $2.46, or 2.1%, higher at $118.52 on the Nymex.
CORN: Prices at the Chicago Board of Trade rose slightly, as losses in soybeans and wheat erased early gains. Corn was sharply higher earlier in the session on forecasts for cold, wet weather in the U.S. Corn Belt that would delay planting. May corn rose one cent to $5.7725 a bushel.
Write to Matt Whittaker at matt.whittaker@dowjones.com |
