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Gold Price Forecast: XAU/USD ETF Holdings Surge to 6-Year Highs

Gold Price Forecast: XAU/USD ETF Holdings Surge to 6-Year Highs

2019-10-08 22:00:00
Peter Hanks, Analyst
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Gold Price Forecast:

  • ETF holdings of gold have surged in recent weeks as the precious metal enjoys steady demand
  • Meanwhile, the price of gold is relatively unchanged from two months ago
  • The continued buildup in gold holdings is an encouraging sign as the laws of supply and demand look to buoy price

Gold Price Forecast: XAU/USD ETF Holdings Surge to 6-Year Highs

Gold has climbed 17% in the year-to-date as rampant uncertainty has spurred demand for the relative safety offered by the metal. Alongside price, the total known ETF holdings of XAU/USD have also surged – boasting the highest ETF ownership of the commodity since February 2013. Since the beginning of the year, total gold holdings via exchange traded funds has increased by about 13.7%, which equates to a market value of nearly $13.3 billion. Although price has leveled off in recent weeks, the continuous demand for the yellow metal in the ETF market could work to serve as a bullish driver for the future.

Gold Holdings Continue Their Climb to 6-Year Highs

XAUUSD Price Chart and Gold ETF Holdings

Data source: Bloomberg

With investors purchasing more than 1.2 million troy ounces of gold since last week alone, the hearty demand stream has shown no signs of slowing alongside price. While the exchange traded fund market does not reflect the entirety of the metal’s supply and demand profile, the two data sets do maintain a statistically significant 0.74 positive correlation dating back to early 2009. Thus, a sustained increase in holdings should eventually act as an upward drag on prices.

Gold Holdings Outpace Price

Gold Price Chart and ETF Holdings

Data source: Bloomberg

That said, it is not immediately clear whether the relationship will return to prior norms due to a decline in holdings or an increase in price, but the fundamental landscape would suggest the latter is a key possibility. A speech given by Fed Chairman Jerome Powell on Tuesday alluded to an expansion of the Fed’s balance sheet, a decision that would effectively undermine the US Dollar’s position – typically a bullish development for gold prices.

Learn the Tips and Tricks of Trading the Gold - Silver Ratio

Therefore, gold’s price may continue to rise in the longer term despite its current tepidity. Nevertheless, traders should keep a watchful eye on ETF ownership of the precious metal. Any indication that demand has started to taper off could translate to a quick retracement in gold. In the meantime, follow @PeterHanksFX on Twitter for a deeper look at the ETF holdings of both gold and silver.

--Written by Peter Hanks, Junior Analyst for DailyFX.com

Contact and follow Peter on Twitter @PeterHanksFX

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