Inflows of gold-backed ETF make biggest jump since 2011

NEW YORK (Reuters) - Economic uncertainty, a weak dollar and falling expectations for U.S. interest rate hikes have spurred the biggest buying spree of gold exchange-traded-funds (ETF) in nearly five years, helping push bullion prices to 7-1/2-month highs, traders said.

One kilogram gold bars are seen at the Korea Gold Exchange in Seoul, South Korea, July 31, 2015. REUTERS/Kim Hong-Ji

“We’re in a global fear mentality right now and it’s at a level now that is attracting interest in gold as an alternative asset,” said Bill O’Neill, co-founder of commodities investment firm Logic Advisors in New Jersey.

“It’s a big bullish indicator. It means that some of the big traders are taking on physical gold.”

On Friday, the most recently available data, holdings in eight major gold ETFs rose to 43.3 million ounces. While this is the highest level since July 2015, more significant is the rapid pace of inflows since the start of this year, a rise of more than 8 percent and the biggest five-week surge since March 2011.

“There are enough compelling reasons for haven seekers to return to gold, especially in view of gold being liquid, portable, convertible to any currency and without political allegiance,” said George Gero, precious metals strategist for RBC Capital Markets in New York.

Last week, holdings of SPDR Gold Trust, the world’s largest gold-backed ETF, rose by more than 4 percent, its biggest weekly rise since March 2009.

This follows three years of ETF outflows, with hedge fund Soros Fund Management LLC surprising traders by eliminating its stake in Market Vectors Gold Miners ETF in the third quarter of 2015.

“Chinese yuan volatility and belief that they have to devalue, manic depressiveness in share markets overall, negative rates in Japan, European rates soon to go further negative, and the Fed believed to be on perma-hold as result of all of the above has driven inflows into gold ETFs,” said Tai Wong, director of base and precious metals trading for BMO Capital Markets in New York.

“Equally important is that gold has been able, finally, to sustain a rally. Tradable trends have been rare in this space so rapacious predators are keen on plundering this one.”

Spot gold prices have surged 12 percent this year so far, rising above $1,200 an ounce at a 7-1/2-month high on Monday, buoyed in part by surging ETF investments, traders said.

This is in stark comparison to a 10 percent price drop in 2015 to the lowest in nearly six years at $1,045.85 an ounce.

Additional reporting by Josephine Mason; Editing by Marguerita Choy