Saturday, May 4th 01:01 PM IST

Gold ETP outflows hit new record in April: Barclays

# Gold  # ETF  # Silver  # Precious Metals  

While US gold coin sales hit their highest since December 2009, ETP outflows continued to put pressure on prices and physical demand lost some of its strength as China went on a three day holiday earlier this week.

LONDON(BullionStreet): Gold prices fluctuated at about the $1460/oz level this week as ETP outflows and US gold coin sales both hit monthly records and the ECB cut its benchmark policy rate.

While US gold coin sales hit their highest since December 2009, ETP outflows continued to put pressure on prices and physical demand lost some of its strength as China went on a three day holiday earlier this week.

According to our economists, the May FOMC statement revealed no changes in the FOMC’s policy stance and there were only modest alterations to how it described the economic outlook, nodding to recent softness in economic data. Our economists still believe that the Fed will continue to purchase $85bn each month through 2013, before tapering in Q1 next year.

As our economists expected, the ECB cut its benchmark policy rate by 25bp to 0.5% on Thursday, 2 May. More importantly, President Draghi left the door open for still lower ECB rates, even possible negative rates for its deposit facility, and noted that the ECB is technically ready to act if needed. While the holiday in China meant an absence of trading volume on the Shanghai Gold Exchange until Thursday, elsewhere in Asia, bar premiums remained high as the premium in Hong Kong clung to its highest since January 2011 at $3.00/oz.

Meanwhile in Tokyo, bar premiums remained elevated and rose to nearly 88cents/oz. In India, prices remained below the INR27,000 per 10g level, and while volumes have been firm since the price drop, physical interest came off this week according to a dealer with a state-run bank in Mumbai. Turkish gold imports jumped from 18 tonnes in March, to nearly 46 tonnes in April, reflecting the surge in physical demand that took place after the price drop earlier in April.

In production news, GoldCorp and Buenaventura, the sixth and seventh largest gold producers, respectively, reported Q1 13 gold production. Buenaventura’s Q1 13 production was 273koz, which is 3% lower y/y but 27% higher q/q largely owing to low production in Q4 12; production is almost flat when compared with Q3 12. GoldCorp’s gold production fell 6% q/q but rose 17% y/y to 615koz, in line with company expectations.

At Beunaventura, gold cash costs at its operations fell to $547/oz, again, largely owing to lower production having pushed cash costs up during Q4 12, while at GoldCorp cash costs rose to a similar level, at $565/oz. GoldCorp confirmed its 2013 full year production guidance of 2.55-2.80Moz and gold cash cost guidance of $525-575 per oz.

Gold ETP holdings continued their downward march, ending April at a record net outflow of 176 tonnes. This comes after having previously set a monthly net outflow record in February (111 tonnes) and brings year-to-date net outflows to 343 tonnes. This is much larger than the total net inflows into gold ETP products of 279 tonnes over all of 2012, and outflows represent 12% of the 2767 tonne peak holdings at the start of the year. Continued ETP outflows remain a key downside risk to prices in the near term; however, in our view, the vulnerability of further ETP outflows subsides should prices recover to above $1500/oz or equity markets underperform given the stronger correlation between the two.

Gold coin sales from the US Mint on the other hand have hit their highest monthly sales volume since December 2009 at 209.5koz in April. May sales have already hit 10koz, and YTD sales are now at 512koz, compared with 753koz in all of 2012. Retail demand has bucked the trend seen across ETP holdings.

This week, Anglo American Platinum announced that it will now report the outcome of its restructuring proposal consultation on 6 May 2013, as opposed to the originally planned 30 April 2013. The bilateral consultation between it and the Department of Mineral Resources is still in the process of concluding.

Once announced, should they downsize the proposed closures and disposals, our platinum balance forecast would remain in deficit, albeit to a smaller extent.

Lonmin this week announced that it had to shut down its Number Two furnace while its Number One furnace is already undergoing a planned upgrade. Lonmin said that the repair will take between 30 and 40 days, but has not provided an estimate with regards to lost production; besides Number One and Two, the three Pyromet furnaces, which account for 50% of Lonmin’s capacity, continue to operate. On the demand side, Q1 13 US vehicle sales declined unexpectedly to 14.9mn in April from 15.2mn in March .

According to our economists, it was below both our and consensus forecasts and is likely a delayed effect of higher tax rates. In Japan however, auto sales saw a strong start to Q2 13, and according to our economists, increased 0.8% y/y to 309k units.

In PGM production news, Aquarius reported Q1 13 PGM production. At 45koz, platinum production rose 2% q/q but fell 18% y/y as fewer producing mines meant less production. The company lost 1.5koz of PGM production during the quarter owing to a one-week safetyrelated closure. Palladium production rose 4% q/q but fell 14% y/y to 27koz while PGM cash costs fell to $849/oz, largely because of better q/q production.

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