Search DubaiPRNetwork.com

Home >> Banking & Investments

Global Metals Weekly: Trading Dislocations in Gold

Wednesday, September 23, 2020/ Editor -  

Share

Home >> Banking & Investments
United Arab Emirates,  September 23, 2020
 
 
Key takeaways 
 
•         Investors remain key gold price drivers; epicentre has shifted from futures to physically backed ETFs.
•         Retail investors are critical. Given extremely high inflows, there were some dislocations earlier this year.
•         EFPs also spiked, but quotes have subsided. Return of the popular short EFP trade.
 
 
Investors remain the gold price drivers
 
The recent gold price rally has been driven by investors, who have steadily increased their exposure to the yellow metal, a dynamic that is, as such, not unusual. Digging a bit deeper, positioning through futures was historically the marginal price driver. Yet, physically backed ETFs have increasingly become the vehicle of choice to access the gold market. Indeed, squaring off futures with physically backed ETFs, recent flow data suggests that paper gold is no longer as important as it used to be.
 
ETFs are the dominant vehicle to access the gold market
 
To put assets under management at physically backed ETFs into context, these vehicles now hold the equivalent of 40% of gold stored in LBMA vaults. Given that most of the ETF holdings are sticky, this has removed some liquidity from the gold market. Looking into market participants, investment advisors, which typically represent retail investors, remain by far the single biggest holders of exchange traded funds at 71%. As such, while institutional investors, who in the past often traded futures, have a share in combined futures and ETF open interest, retail investors, typically through physically backed ETFs, are now more critical. Linked to that, significant inflows into exchange-traded funds showed up in periodic dislocations between ETF prices and NAVs over the summer, although these have by now normalised.
 
EFP quotes are normalising
 
Dislocations also showed up in exchange-for-physicals (EFP), which are, essentially, a market-neutral position in a CME futures contract and OTC physical gold. During the lockdowns, logistical challenges and concerns over liquidity on CME meant that EFPs spiked. Since then, steady gold deliveries into the exchange's warehouses mean that trading on CME has started to normalise; incidentally, these shipments along with extremely high inflows into ETFs at some stage raised concerns over the health of the physical gold market. Putting it all together, with dislocations now having subsided, and there is scope for the popular short EFP trade to make a return.
 

Previous in Banking & Investments

Next in Banking & Investments


Home >> Banking & Investments Section

Latest Press Release

Water Experts Sound Warning Over Hygiene as Covid Restrictions Relax

Leap Further Ahead with HUAWEI Mate 40 Series: Huawei Unveils the Most Powerful ...

Emirates Post marks UAE's Mars Mission with Commemorative Stamps

Hijri Perpetual Calendar Platinum'

Dubai Customs Launches Month-Long Breast Awareness Campaign

ART Fertility Clinics Record 78 Percent Success Rate

Jaguar Land Rover Using Aerospace Technology to Develop Future Lightweight Vehic ...

5G Holds the Key to Saudi Arabia's Digital Future

Abu Dhabi's Return to Fight Island Is A True Global Platform For UFC Talent to S ...

Emirates to Operate A380 to Amman as Part of Expanded Schedule

Tonda Reine de Mai for Elegant Lady

[SUR]Naturel – Fine Jewellery

Global Supply Chain Activity Surges To Pre-Pandemic Levels In Q3, But Cash Crunc ...

Etisalat Group Reports a 6% Increase in Consolidated Net Profit for Q3 2020 to A ...

The Eagle and The Highlight Face Off on Yas Beach Ahead of UFC 254 Showdown

IATA Revises 2020 Passenger Traffic Forecast Down for the Middle East

Significant Fuel, Time & CO2 Savings Expected from Jordan / Israel Airspace Agr ...

Balqees Fathi Launches BEX Beauty

Stay Ahead of the Game with HONOR Smartphones

ÑæÍ_ÇáÏæÑí# (The League's spirit): Combining the love of football with humor on ...