Are ETF Inflows Suggesting Gold Has Room to Move?

The GLD has seen inflows increase since the SNB debacle, up 1.57 percent today.

Bullion.Directory precious metals analysis 20 January, 2015
By Christopher Lemieux
Senior Analyst at Bullion.Directory; Senior FX and Commodities Analyst at FX Analytics

If anything was learned last week when the Swiss National Bank (SNB) unequivocally shocked the markets is, gold is the ultimate central bank hedge. Gold has always been a go to during times of uncertainty, but it is the simplest way to hedge away currency and counter-party  risk; and some still believe the the SNB did not live up to their verbal agreement to markets to keep the euro-franc peg alive.

There has been a rapid move into gold-backed ETFs on the back of the SNB move. A total of 843,000 ounces of gold were added to these funds, as inflows increased 1.68 percent on Thursday and Friday of last week.  This was the largest inflow since 2011, following the SNB’s decision to peg the franc to the euro (see the original ZeroHedge article here). The largest gold-backed ETF, iShares Gold Trust (GLD), is up over 1.5 percent today.

This could be an important factor in the long-term outlook for gold. Gold-backed ETFs are largely, if not almost exclusively, held by hedge funds and large speculators (whereas silver ETFs are popular with retail investors). The “smart” money could help the yellow metal push higher in order to hedge volatility and risk.

The GLD is getting extended on the daily merely on the price activity. However, like spot gold, it is far from overbought on longer-term charts. Look for traders to digest the move before continuing higher. The ADX momentum indicator is signalling a strong price trend. Look for GLD to target $126.50 before budding up against a near-term downtrend line.

The GLD was down 37 percent from its 2012 high of $172, but is up almost 15 percent since hitting the low of $114. This could be an import inflection point for GLD.

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