• December 1, 2022

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Investors have gone cold on gold.

They are shunning purchases of the yellow metal like it’s gone out of fashion, new research shows.

In the third quarter, investments in the yellow metal totaled a mere 123 metric tons, or almost 4 million troy ounces, according to a recent report from industry group World Gold Council.

That’s the lowest level of quarterly investment demand since 2004, almost two decades ago when the Boston Red Socks beat the New York Yankees in the World Series. That is to say it was long ago.

Much of the decline in investor gold buying came as the result of investors in bullion-backed exchange-traded funds dumped holdings of 227 tons during the three month period. That’s the largest gold-backed ETF outflow since the second quarter of 2013, according to WGC data. The outflow approximately $12 billion, based on the recent price of around $1,651 a troy ounce.

Notably, the world’s largest gold ETF, the SPDR Gold Shares (
GLD
) saw a drop in its holdings from approximately 1,0500 metric tons at the end of the second quarter to 919 recently, according to fund data.

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“ETF investors reduced their holdings due to rising interest rates and a strong U.S. dollar,” says Juan Carlos Artigas, global head of research at WGC. Gold prices peaked at $2,052 a troy ounce in March before falling, according to TradingEconomics.

That decline coincided with the Federal Reserve’s interest rate hikes which are aimed at taming the surge in inflation.

The investor flight from gold ETFs, was offset by purchases of physical bars, official and medallions totaling 350 tons, the highest level of such buying since 2016. “bar and coin investors may have used the price pullback combined with macroeconomic uncertainty to increase their gold exposure,” Artigas says. In other words, this set of buys went bargain hunting in a big way.

Still, the overall message is simple: Last quarter gold investors spent the least money on gold investing in almost two decades. That isn’t a bullish situation.

The rule of thumb I have consistently been told is to look at annual investment demand for gold. If that totals more than 20 million ounces, then it’s a bullish sign. If less, then it’s not bullish.

In this case, the annualized rate of investment buying, based on annualizing the quarterly data is a little less than 16 million ounces.

If the rule of thumb continues to work, then don’t expect much good to happen anytime soon.

That said, WGC’s Artigas sees solid buying by central banks and retail investors to “remain strong,” so perhaps the recent drop may reverse or be moderated.

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