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Gold ETFs Biggest Ever Monthly Outflow, Too Early to Call Bullion Bull Market

March 4, 2013 - The price of gold bullion reached one-week lows below $1,570 per troy ounce on Friday morning, in line for a third straight weekly drop, following a drop of 5.9 percent during the month of February as gold exchange traded funds saw their biggest calendar month outflow on record.

A Commerzbank commodities note states ETFs will probably contribute negatively to investment demand for the first time in eight quarters.

The note continued it is nonetheless to early to proclaim the end of the twelve-year bull market for gold. The ultra-loose monetary policy of major central banks, negative real interest rate and gold purchases by the central banks of emerging economies continue to suggest that gold prices will rise.

Following a boost in the gold market from the testimony of Federal Reserve Chairman Ben Bernanke, the price of gold gained over $20 per troy ounce, but the market was unable to hold onto the momentum for an extended period of time in the current market environment.

In the U.S., markets are currently working out from the shadow of the sequestration budget cuts, though Ed Meir, metals analyst at brokerage INTL FCStone, said he does not think the U.S. sequester will change the gold market sentiment one way or the other. He added that $85 billion in spending cuts is simply too small to make much of a difference to the economy and although it could cause some problems, it will have no bearing on influencing investor allocations among different asset classes.

However, Meir did say that INTL FCStone suspects we will see more price erosion heading into next week given gold’s poor fundamental and technical backdrop.

Though U.S. Gold coins are down from record sales levels in the month of January, partially an effect of seasonal sales, levels for the month of February indicate gold coins sales 283 percent higher year on year. Exchange traded funds, in the same time period, witnessed their biggest monthly outflow on record, accord to data from Bloomberg. The trend indicates the prominence of physical bullion in the current market environment. Sales levels for both gold and silver bullion at the U.S. Mint coincide with the political debates over the U.S. budget that began in earnest following the reelection of the U.S. President. Though Forbes has called the month long fiscal cliff debate of December a drag on commodities markets including precious metals, the stance of the U.S. budget environment itself appears to be driving more investors to the possession of physical bullion itself. 

Daily Updates Archive

Jonathan Monroe

Senior Staff Writer -

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