The Gold Stampede  - Gold ETF Holders Run to the Hills

What a difference a few months make for the Gold market! The metal has gone from a safe haven asset and inflation hedge to an underperforming asset, and some traders are trying to lessen their exposure. Weaker European growth and Japanese deflation concerns could continue to prop-up the US Dollar versus the other majors. The technical breakout in the Dollar Index suggests the average could run another 400 points, which could make any new Gold longs skittish.


Fundamentals

Gold futures have taken another hit this morning, as some traders continue to shed ETF holdings of the metal. Since the beginning of the year, ETF holdings have fallen 16%. The notable names that have reduced their holdings include Soros, Northern Trust, and Blackrock Holdings. Some traders had stockpiled Gold during the financial crisis, and continued to add to their positions as the metal rallied. However, current economic conditions have failed to induce further panic. At the same time, lackluster growth has failed to inspire demand for the metal as an inflation hedge, despite central banks' best efforts to stimulate growth. The Dollar Index appears to have made an upside breakout, which could continue to drive the currency higher. A stronger greenback could dissuade some potential value buyers from testing the market.

Technical Notes

Turning to the chart, we see the June Gold contract failing to confirm a reversal pattern. June Gold showed signs of a possible reversal in late April, only to have prices flatten out and,now reverse back. Prices did not even manage to test the 1500 mark before retreating once again. Fresh lows below 1350 could bring selling pressure. Currently, the RSI is at oversold levels, which could be supportive in the near-term.