Last updated: May 16, 2013 4:49 pm

Gold hits 4-week low on ETF selling

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Gold fell to a four-week low on Thursday, with an increasing number of investors becoming bearish about the precious metal as it has fallen through technical support levels.

Gold, which had rebounded from a two-year low of $1,321.35 a troy ounce in April, fell to $1,369.29 as investors continued to liquidate their holdings in exchange traded funds. Higher equity prices and the firmer dollar also affected sentiment.

A poll taken this week by Credit Suisse of 185 commodities investor clients reflected the level of pessimism surrounding the yellow metal.

More than half questioned said that gold would be trading at less than $1,400 a troy ounce in a year’s time, while 38 per cent predicted that it would be between $1,600 to $1,800. Ten per cent forecast $1,800 and $2,000 and the remaining 1 per cent said the yellow metal would be higher than $2,000.

Of those polled by the Swiss bank, 60 per cent chose gold as the commodity with the worst 12-month outlook, compared with 18 per cent who picked copper, 16 per cent corn and 6 per cent crude oil.

Ric Deverell, global head of commodities research at Credit Suisse, said the two factors that had been supporting gold – fears both of inflation and of a markets meltdown because of a eurozone collapse – had diminished.

Inflationary pressures were not rising, while the pledge by Mario Draghi, European Central Bank president, to do “whatever it takes” to preserve the euro had meant that worries about the periphery countries had eased.

Gold price

“We could see gold trading at $1,100 in a year,” he said, adding that in the long run, prices could average at about $600 a troy ounce. In 2007, the yellow metal was trading at about $650.

Mr Deverell added that it was uncertain whether the physical buying was additional purchases or whether it was bought forward because of the lower prices. “We might have a big hole at the end of this,” he said.

Other analysts said that gold continued to be depressed by ETF outflows. The market has seen a record four consecutive months of net outflows from ETFs and since the start of the quarter, outflows have totalled 236 tonnes.

Jim Steel at HSBC in New York said: “We’re still seeing ETF liquidation. It’s driving prices down.”

Although physical buying of gold had supported the price over the past few weeks, this was petering out, said traders.

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