Sell in May and go away. Gold investors seem have taken this financial maxim to heart, and have been dumping gold like never before.
Last month’s panic-selling saw the yellow metal crash through several support levels and crash-land at $1,335 per troy ounce on Tuesday, April 16.
By last week, it had recovered to about $1,475 per ounce on huge physical buying support witnessed from the usual gold bulls –India and China, via Dubai and Hong Kong. Read: Gold price falls to $1,420/oz: Dubai sees massive surge in bullion demand
However, this morning, a month after the Black Tuesday, gold prices are down to $1,409.73 per ounce (12.30pm UAE time,8.30am GMT), with a downward pressure on precious metal prices.
Will we see another plunge this month?
A mass dumping of gold ETFs – paper gold, but some are physically backed – has been blamed for the recent sell-off, and by all measures, the ETF auction isn’t over yet.
According to a BlackRock report this month, April saw net outflows of $9.3 billion in commodity ETFs – the biggest monthly exit by investors from the asset class in its 10-year lifespan.
This overshadowed the previous record monthly outflow – also made recently, in February 2013 – of $5.2 billion.
“This is the largest monthly outflow in commodity ETFs on record,’ Dodd Kittsley, BlackRock’s Global Head of ETF Research, said in the report. “A lot of this can be explained by the drop in the underlying [price] in gold,” Financial News quotes him as saying.
“This coupled with other factors such as the low inflation expectations in the US has led tactical investors to exit the metal, which makes up 66 per cent of commodity ETFs globally,” according to Kittsley.
Evidently, commodity ETFs remain under pressure, and in the absence of a strong trigger, prices could easily slide below the psychological $1,400-benchmark level. If it does, indeed, breach that all-important support, in theory, it could well test last month’s low.
In practice, however, as we have noted in our earlier reports, physical buying support has been increasingly strong at these levels, and gold bulls are expected to fight back to defend the all-important $1,400 level.
However, physical support lags the speed of ultra-sensitive triggers set on the world’s bullion exchanges, and a dip below $1,400/oz, however brief, could once again result in these triggers going off, resulting in a repeat of the bullion bloodbath we saw just last month.
