Gold enjoyed a sparkling start to trading on Monday, hitting a record $914 a troy ounce, but its performance dulled later in the week as investors started to withdraw from gold exchange-traded funds.
The outflows were substantial with 22.7 tonnes leaving streetTRACKS, the largest gold ETF this week. On Thursday, streetTRACKS saw a record one-day outflow of 21 tonnes, equivalent to a month of gold production in China, now the world’s largest producer.
At a time of increased risk aversion and equity market weakness, this unexpected reversal in sentiment towards gold has proved unsettling.
“Should this scale of redemptions continue, it may put into question the widely held view that ETF investors differ from other gold buyers in that many have a strong ‘buy-and-hold’ mentality,” said James Steel of HSBC.
ETF investors have played a key role in driving gold to record levels, but the flip-side has been a sharp drop in demand from the jewellery market. GFMS, the precious metals consultancy, warned this week that jewellery buying could fall by 20 per cent in the first half of 2008 due to high and volatile prices.
Gold slipped 1.7 per cent to $880.25 a troy ounce this week with traders watching $865 as a key support level.
Fears about the possibility of the US economy sinking into recession cast a shadow across commodity markets this week.
The Baltic Dry index, a measure of freight costs for bulk commodities such as iron ore, coal and grains, dropped 18.7 per cent this week to 6,462 after a series of record one-day declines. The fall reflected a number of temporary disruptions to the availability of coal and iron ore cargoes, but it also sparked concerns this was an early warning that the commodities boom could be about to come to an abrupt end.
