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May 25, 2016 | 12:30 | Dubai
Despite the stronger dollar and weaker price action, demand for gold through futures and ETPs (exchange-traded products) has been particularly strong this month. This indicates that the reallocation to gold continues and that it remains relatively insensitive to short-term price movements, Ole Hansen, Head of Commodity Strategy, Saxo Bank has said. The renewed focus on US rate hikes, however, will now test the strength of this underlying demand, Hansen said in his latest weekly note.
Overall, precious metals, led by palladium, and silver suffered the biggest setback as the prospect for a stronger pace of US rate hikes triggered profit-taking. Gold traded weaker for the third week in a row and the recent weakness has undoubtedly been attracted some tactical short selling from bears now increasingly frustrated by gold’s lack of a proper correction following the strong surge at the beginning of the year. Whether shorting gold will pay off at this stage, however, remains a big question. “While gold is down by around 3% this month, we have seen demand for gold through exchange-traded products rise by 4%,” he added. Total holdings in ETPs backed by gold has, according to data from Bloomberg, reached 1,833 tons, a 2½-year high. Seeing investment demand rise while the price drops indicates that recent buyers are looking at the long-term prospects rather than being put off by short-term adversity.
The accumulation of gold via ETPs has continued this month despite of price weakness seen during this time: