Gold Market Not As Vulnerable As Feared To ETF Drawdowns

That's the message from a Reuters article webbed by the Financial Post. It's based upon last month's experience, when ETF holdings fell in tandem with falling gold prices. That experience showed that the other sources of demand, such as physical demand in Asia, are robust enough to pick up a lot of slack from falling investment demand.

If significantly more ETF gold were to hit the market, it could have a short-term impact on prices. But analysts say there are plenty of other demand sources out there to mop up supply, as long as good underlying reasons to buy gold remain.

“We are still in a zero interest rate environment, we still have major fiscal issues in Europe, America and Japan, we are still seeing lack of confidence in fiat currencies,” said Philip Klapwijk, chairman of metals consultancy GFMS.

“I don’t think we are at the beginning of a secular change in direction. The bull case for gold is still intact.”...

Nick Brooks, head of research at London-based ETP operator ETF Securities, said though he expects the outlook for growth and interest rates could prompt selling of gold in the short term, demand for the metal is likely to stay firm this year.

Premiums for gold bars in much of Asia last week were at their highest since at least 2004 in the run-up to Chinese New Year and India’s wedding season. The two countries are the world’s biggest consumers of physical gold holdings and the gold price....

Whistling past the graveyard? Not as of now. Divestment from ETFs would amplify an all-out bear market, but the source of such divestment would be the same force(s) that made for the bear market itself. So far, there are none on the horizon.