GOLD NEWS

Gold bubble worries lead to significant sell-off in top gold ETF

Investors have been taking profits in their holdings in the world's largest gold ETF on 'burst bubble' worries

Author: Lawrence Williams
Posted: Wednesday , 09 Dec 2009

LONDON - 

The world's largest gold-backed exchange-traded fund, SPDR Gold Trust (GLD), noted that its holdings fell to 1,116.247 tonnes, worth over $41 billion at the current gold price, as of December 8^th.  This represented a fall of 1.2 percent or more than 13 tonnes in a day and was the largest one-day drop in around five months according to a Reuters report.  The SPDR Gold Trust ETF hit a record high of 1,134.03 tonnes on June 1, and up until recently had been climbing back towards this level again. 

Further falls were expected to be announced today as the gold market is going through a period of uncertainty and some investors are liquidating some or all of their holdings, and taking some hefty profits, in case the recent gold price falls are because a gold price ‘bubble' has burst.

The SPDR Gold Trust gold holdings are larger than those of most nations' Central Banks, and there has always been a worry that this overhang of gold, effectively in fickle investors' hands, could in itself prompt a catastrophic fall in the gold price if sentiment moved sufficiently to generate a major sell-off, leading to a downwards price spiral. 

So far this has not happened, and with the weaker dollar this morning seeing the gold price pick up, and continuing economic uncertainty, there is evidence of buyers coming back into the gold market seeing the earlier falls as a good buying opportunity, and ignoring the ‘bubble' talk.

There is no doubt that the recent sharp movements in the gold price that have seen it fluctuate up and back down by nearly $100 in the past weeks make this a market for those with nerves of steel.  Several observers have warned of excessive volatility ahead and these warnings are definitely coming into play.  The fundamentals which have been driving the gold price upwards are still in play, but as we have warned before on Mineweb, markets are often driven by investor sentiment and if the force is no longer seen to be with gold there could be even more volatility ahead for the price until some stability sets in.

Movements up or down in the SPDR gold ETF holdings will thus be watched with particular interest over the next few days as this will be a good indicator of where gold investment sentiment is trending.