“Just a month after gold suffered its biggest one-day drop in three decades, the precious metal has once again fallen victim to heavy selling pressure. But a tug of war between physical buyers and institutional sellers will put a floor under the precious metal, said analysts.
“The physical gold buyers and ETF [exchange traded fund] buyers have different mentalities. The physical buyers love the fact that whenever gold drops it is a buying opportunity,” Kelly Teoh, market strategist at trading firm IG Markets told CNBC.
Spot gold extended its fall below $1,400 an ounce on Thursday, declining to as low as $1,386.89 in early Asian trade. The yellow metal has lost over 5 percent in the past week.
The stellar performance of equities, softer inflation expectations, and strength in the U.S. dollar – which makes gold purchases more expensive – is pushing institutional investors out of gold in search of higher returns. This has lead to selling by exchange traded funds that are backed by physical gold.
Gold ETFs saw their largest ever monthly withdrawals in April as investors reduced their holdings by 176 tonnes, according to the Financial Times which cited Barclays Capital.
However, Teoh said, buyers of physical gold think differently. “They don’t have confidence in central banks, which are just pumping liquidity in the market [eroding the value of money]. There is no conviction in currencies. So it’s a very different mindset.”
“As a friend of mine says, gold is like a religion, you either believe in it or not,” added Teoh.
Premiums for gold bars rallied to all-time highs in major cities in Asia including Hong Kong and Singapore on Thursday after the drop in prices fueled another round of buying, limiting supply, Reuters reported….”
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