Renewed flight from gold ETFs

After a soft start to the week, the gold price jumped on Friday, coming close to retaking the psychologically important $1,200 an ounce level.

Gold's gains since hitting four-year lows early November are close to 5%, but the metal's resilience against a sliding oil price, a rampant dollar, record money flowing into equities and looming interest rate rises has not enticed investors to return to physical gold-backed ETFs.

Holdings in the bellwether exchange traded fund backed by physical gold, SPDR Gold Shares (NYSEARCA:GLD), fell by 11.6 tonnes on Monday, the worst performance in 18 months, and the sales continued in post-Christmas trade.

At the close on Friday holdings in GLD, which represents nearly 50% of the gold-backed ETF market, stood at 712.3 tonnes or 26.9 million ounces, the lowest since September 22, 2008.

Kitco quotes a research note from HSBC pointing to the risk to the gold price of continued ETF outflows:

"If ETF investors begin to liquidate more heavily, gold may be in for another round of declines," according to HSBC but the investment bank is not expecting further substantial selling during the holiday trading period.

After a positive start to December, this week's outflows have put GLD back in the red for the month with 5.3 tonnes of net redemptions.

The performance so far in 2014 is dismal with investors pulling just over 85 tonnes from the trust although outflows have slowed substantially from the 552 tonnes pulled from GLD in 2013.

Holdings in GLD peaked in December 2012 at 1,353 tonnes or 43.5 million ounces.

In November Barclays noted the risk to the early money invested in the dozens of listed gold-backed ETFs across the globe.

Almost 900 tonnes (700 tonnes on a net basis) were acquired between $900 – $1,000 an ounce.

If the gold price were to fall to $1,000/oz, an additional 100 tonnes would become cash negative according to the UK bank.