According to a report by the World Gold Council (WGC), gold fell 12 percent to US$4,608 an ounce in March, its weakest month since June 2013. The precious metal declined in value across all major currencies but maintained a positive trend for the year.
The Council used its Monthly Gold Return Attribution Model (GRAM) to identify that most of the decline resulted from momentum factors, including global gold ETF outflows, a COMEX net long unwind and a change in price trend.
“Our monthly attribution model GRAM has captured the sentiment – but not the magnitude – of the move, attributing the decline mostly to momentum factors: global gold ETF outflows, COMEX net long unwinding and price trend reversal,” the World Gold Council said.
Gold price in Delhi today
COMEX stands for Commodity Exchange Inc., which is the primary futures and options market for trading metals such as gold, silver, copper, and aluminum.
The report said “Global gold ETFs declined by US$12 billion (84 t) during the month, led almost entirely by North America with US$14 billion (-87 t) and Europe with US$0.1 billion (-7 t). Asia’s inflow of US$1.9 billion (10 t) was a welcome positive, and highlighted how declines in Asia translated into much larger fund flows, but With fewer equivalent tons.”
“Although real yields and the dollar undoubtedly contributed to net sales, other factors also likely played a role,” the report noted.
Positioning played a role as the perceived increase in gold’s retail exposure outweighed the risk. COMEX non-reportable positions, which are linked to reported retail exposure, saw a cumulative net decline of 18 tonnes during the first three weeks of March. This corresponds to a 22t decline in managed funds, reflecting greater institutional activity.
A portion of gold ETF sales likely came from retail hands, with the US accounting for the bulk of the 80 tonnes lost globally between the start of the month and March 24.
“CTA-driven selling is likely to accelerate the decline. Estimated and actual reported Commodity Trading Advisors (CTAs) were extremely long headed in mid-March. When gold broke above the 50/55-day moving average for the first time in seven months on March 16, they reportedly unwinded their positions bullishly,” the council said.
Widespread cross-asset deleveraging also spilled over into gold as high margin loans relative to market capitalization contributed to widespread equity selling. Gold faced liquidation pressure as multi-asset investors, including CTAs with equity exposure, trimmed positions to meet liquidity needs and reduce portfolio risk. Bond market dynamics reinforced this pressure as US bonds sold off on near-term inflation shocks, pushing 2-year nominal yields higher.
“Downward pressure on prices has been further intensified by central bank intervention following the decision by the Central Bank of the Republic of Turkey (CBRT) to use approximately 50 tonnes of gold as collateral, mainly through swaps, which may fuel rumors of a sale.”
“This was driven by liquidity and no change in gold strategy, supported by US Fed data which showed an increase in outright sales of US Treasuries by central banks to reduce higher energy price risks,” the report said.
Looking ahead, the World Gold Council found that fundamentals began to reassert themselves as the dollar struggled to maintain gains and ETF flows turned positive in early April. While risks remain with respect to oil prices and potential cross-asset deleveraging, the report said investors continue to view gold favorably over the medium-term horizon.
