Holdings in exchange traded products (ETP) backed by physical gold rose for a third consecutive week as of last Friday, according to data supplied by Bloomberg. The weekly rise of 12.3 tons was the biggest since November 2012 and it took the total holdings up to 1766.4 tons, the highest level since December 27.
Gold spiked higher during Asian hours on the election news from Crimea and the news from China about the widening of the USD/CNY band. After reaching a high at USD 1392.2/oz, profit-taking set in and this was not least due to the limited adverse reaction to these news items in other asset classes. In China, the interest for physical gold has been relatively subdued in recent days with the price of Au9999 on the Shanghai Gold Exchange trading at a discount to spot gold.
On this basis, it is abundantly clear that safe haven flows related more to Ukraine than physical interest in Asia. This, together with a weaker dollar, have been the drivers during the past few weeks. As a result, gold has breached several technical levels, which has further increased the positions among momentum traders. ETP investors have also been dipping their toes back into the market. However, with holdings now only a few tons above the level they were at at the beginning of the year, it shows the extent of the damage that was caused by the dramatic sell-off in 2013.
Looking ahead, the Ukraine crisis and especially the tensions between Russia and the West should keep the metal supported ahead of the first Federal Open Market Committee (FOMC) meeting (Wednesday) with US Federal Reserve chairman Janet Yellen at the helm. The current rate of monthly taper by USD 10 billion is expected to be maintained. For now, the yellow metal is stuck between support at USD 1355/oz and psychological resistance at USD 1400/oz. ahead of the August high at USD 1434/oz.
