Suki Cooper, Global Head of Commodities Research at Standard Chartered Bank, warned that the gold market faces further vulnerability in the near term as prices turned negative for the year and exchange-traded fund holdings continue to decline. Spot gold last traded at $4,221.10 an ounce, down nearly 1% on the day and more than 2% year-to-date, with prices dropping more than 5% since Friday when they broke below the 200-day moving average. Cooper attributed the selloff to macro headwinds and rising real yields, as markets price in a Federal Reserve rate hike by year-end. Investment demand in ETF markets traditionally correlates more closely to real yields than physical market factors, raising the opportunity cost of holding non-yielding assets like gold as inflation drives yields higher.
Gold Price Performance and Technical Breakdown
Gold hit a bearish marker as prices turned negative for the year, remaining above March lows but breaking critical support at the 200-day moving average on Friday. The precious metal is down more than 2% year-to-date after dropping more than 5% since Friday. Spot gold last traded at $4,221.10 an ounce, down nearly 1% on the day.
Cooper's ETF Redemption Warning
Cooper stated in her latest precious metals note that the selloff could intensify as investors liquidate losing positions in gold-backed exchange-traded funds. "We expect price action to become more vulnerable in the near term, driven by macro headwinds. Gold has started taking its cue from real yields again," she said. Tactical positioning turned positive in May, but ETP holdings fell 16 tonnes and have continued to decline in June, according to Cooper.
Technical Support Levels and Loss Exposure
Cooper identified $4,250 an ounce as the first technical price level investors need to watch. "An analysis of gold ETP flows shows that at least 270t of holdings are in loss-making territory at recent price lows of c.USD 4,250/oz; this rises to 465t if we assume the net redemptions this year were profitable and established at lower price levels, on a FIFO basis," she said. Loss-making positions would rise to 298 tonnes if prices fell to $4,000 an ounce, with the next technical support level around $4,100 an ounce.
Market Drivers and Medium-Term Outlook
Cooper explained that investment demand in ETF markets has a closer correlation to real yields than to other structural factors in the physical market. Rising inflation is forcing markets to price in a rate hike from the Federal Reserve by the end of the year, driving real yields higher and raising the opportunity cost of holding gold. Renewed bullish momentum in the U.S. dollar is also adding to gold's headwinds. Despite near-term vulnerability, Cooper remains optimistic that gold prices can recover in the medium term.
FAQ
What price level did gold break below on Friday?
Gold broke below critical support at the 200-day moving average on Friday, triggering a selloff of more than 5% since then.
How much gold ETF holdings are in loss-making territory at $4,250 per ounce?
According to Suki Cooper's analysis, at least 270 tonnes of ETP holdings are in loss-making territory at $4,250 per ounce, rising to 465 tonnes on a FIFO basis assuming this year's redemptions were profitable.
Why is gold becoming more vulnerable according to Standard Chartered?
Cooper stated that gold is taking its cue from real yields again as markets price in a Federal Reserve rate hike by year-end, raising the opportunity cost of holding non-yielding assets like gold while ETF holdings continue to decline.
