Gold retreated from recent highs last week, dropping 2.3% to end the week below the $1,300 threshold, at $1,295 per ounce.
The momentum behind recent gold buying appeared to weaken, as new unemployment data suggested that the US economic recovery is continuing, while the initial panic triggered by the crisis in Ukraine faded, as tensions in the region eased slightly. Hedge funds reduced their net-long positions on gold by 8.5% in the week to 15 April, while short holdings — betting on a fall in the price of gold — increased.
There were also questions about the strength of Chinese demand for gold. China is the world’s largest gold buyer, but a recent report from the World Gold Council said that up to 1,000 tonnes of gold has been used as collateral in financing deals, rather than to satisfy consumer demand — suggesting that underlying gold demand in China may be weaker than previously thought.
The main route by which traders and investors gain exposure to gold is through exchange-traded physical gold funds such as the $33bn SPDR Gold Trust (NYSE: GLD.US) ETF, which closed last week down by 2.7% at $124.24. SPDR reported gold outflows of 9.3 tonnes last week alone, cancelling out this year’s gains, and on Monday 21 April, the firm said its holdings had fallen by a further three tonnes to 792 tonnes, the lowest level since late January.
A London-listed alternative, Gold Bullion Securities (LSE: GBS), ended the week down by 1.3% at $124.79. So far this year, shareholders of Gold Bullion Securities have seen the value of their holdings rise by 3.7%, while the value of SPDR Gold Trust shares has risen by 5.3%.
Gold mining equities
Gold equities were broadly flat last week, although silver and gold miners Fresnillo and Hochschild Mining fell by 3% and 7% respectively after first quarter production reports for both companies disappointed investors.
Canadian gold miner Kirkland Lake Gold (LSE: KGI) also fell, ending the week down by 11.5% at 165p. The firm didn’t release any new information last week, but was downgraded by analysts at CIBC to ‘underperform’. Consensus earnings forecasts for Kirkland have been cut by $0.20 per share over the last three months, giving the firm a forecast loss of 8 cents per share, or CAD$6.4m, for the year ending 30 April 2014.
