Gold faces hard times in the US

News Arnulf Hinkel – 21.12.2016

While initially the predominant view was that an election victory by Donald Trump would shatter the financial markets, lately this fear has given way to a real euphoria: Trump's promise to "make America great again" – whether by protectionism, tax reductions, extensive government investments or increased deregulation – has driven the blue chip indices worldwide to unimagined heights. The ECB's decision to continue its policy of cheap money has certainly further added this development. As a consequence, the interest in gold among major investors has decreased. As the Commitments of Traders Report, recently published by the US CFTC, has proven, open interest, i. e. the number of open-ended futures contracts on gold held by major investors fell 10 percent in the first week of December regarding net long positions. Small investors and private investors, however, have acted quite differently, as a 14.2 percent rise in open interest during the same period has shown.

US-based major investors are not only pessimistic regarding the prospects for gold in the future, as significant recent outflows of gold ETFs have shown: the gold holdings of the world's largest gold ETF alone, the SPDR Gold Shares, have shrunk by 14.82 tons to 870.22 tons within a trading week. In the wake of the Brexit vote, the gold holdings of this fund were at 982.72 tons. In Germany, investors seem far less pessimistic about the prospects for their gold investments. Xetra-Gold, the German counterpart to the American SPDR Gold Shares ETF, has thus hardly lost its attractiveness to investors. As of 1 December 2016, Xetra-Gold had a volume of 114,123 tons of deposited gold – just above a ton less than the absolute record level that was achieved on 14 October 2016. The reason for this may well be that, in addition to the elimination of the US-dollar currency risk, the strategies of German investors identify Xetra-Gold primarily as a hedging instrument for their portfolios.

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