Can gold’s rally last as ETF investors continue to ignore the market

Welcome to the Outlook 2023 Kitco News series. Uncertainty continues to dominate financial markets as central bank monetary policies push the global economy into recession to cool inflation. Follow Kitco News to learn from the experts how to navigate the turbulent financial markets of 2023.

(Kitco News) – The new year is proving to be a solid start for the gold market as prices end the week near nine-month highs.

The gold market has rallied for five consecutive weeks as prices rose more than 5% in the first month of 2023. And while there is strong bullish sentiment in the market, there is still one part of the market missing.

Investors are still not jumping into the market, leading some analysts to question how sustainable this new increase is. While gold prices are up 5% this year, data from the world’s largest gold-backed exchange-traded fund, SPDR Gold Shares (NISE: GLD ), shows demand for the ETF continues to decline.

Since January 19, GLD’s gold holdings have fallen by 5.21 tons. The question is: Is price tracking broader investment demand, or will ETF purchases increase to reflect bullish market sentiment? ETF market outflows have slowed, but not ended.

At the same time, there are concerns that silver is not seeing the same bullish sentiment as gold. After outperforming gold in November and December, silver appears to be hovering around $24 an ounce.

Silver’s lack of momentum is also a stark contrast to what’s happening in other industrial metals like copper, which is trading at a seven-month high of around $4.26 a pound.

It will take some time for these market divergences to work themselves out. Still, there are reasons to hope that investors will eventually see value in holding precious metals.

This week Bank of America released a very bullish report on gold; analysts said they expect the precious metal to be a major asset over the next three years.

And Bank of America is not alone in its bullish outlook. In November, European fund manager HANetf surveyed 100 European and UK wealth managers. According to the results, 89% of those respondents said they intend to increase their exposure to gold.

“It may now be the case that a lot of the negative sentiment towards gold has passed,” Tom Bailey, head of ETF research at HANetf, said in a report.

In terms of what’s driving sentiment in precious metals, the biggest factor continues to be the weakness of the US dollar; The US dollar index has fallen more than 10% from its 20-year high in September.

According to analysts, the US dollar is losing momentum as markets expect the Federal Reserve to slow its aggressive tightening cycle. Markets have almost fully priced in a 25 basis point move from the US central bank next month.

In an exclusive interview with Kitco News, respected economist David Rosenberg said he expects the February meeting to be the Federal Reserve’s last hike. He added that the coming recession will force the central bank to start cutting interest rates sometime in the second half of the year.

In this environment, he expects gold to be an attractive asset and sees prices rising to new record highs above $2,000 an ounce this year.

With so much bullish sentiment in the market, many analysts think it’s only a matter of time before investors return to gold.

Finally, the Kitco News team wishes everyone a Happy Lunar New Year and may the Year of the Rabbit be prosperous for all.

Disclaimer: The views expressed in this article are those of the author and may not reflect the views of the author Kitco Metals Inc. The author has made every effort to ensure the accuracy of the information provided; however, neither did Kitco Metals Inc. nor can the author guarantee such accuracy. This article is for informational purposes only. It is not a solicitation of any exchange of commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept responsibility for losses and/or damages arising from the use of this publication.

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