Thursday June 13, 2013 12:34 PM (Kitco News) - Although the panic selling in gold appears to have stalled, investors are still not ready to jump back into the market, said analysts.
Many analysts have been watching exchange-traded funds like SPDR Gold Trust ( GLD ) to gauge investor sentiment; although the mass redemptions seen in mid-April and May appear to have slowed, the market is still fragile, which could lead to lower prices in the medium term.
In April, in connection with the biggest drop in gold prices in 30 years, 138.51 metric tons of gold flowed out of the trust; in May 62 metric tons were redeemed and so far in June the trust's holdings have held relatively stable. As of June 12, only 3 tons of gold have been redeemed.
The trust's assets remain near their lowest levels in more than four years. So far this year, GLD has lost more than 18% of its value and is currently trading around $133.
Michael Widmer, metals strategist from Bank of American Merrill Lynch, said in his best-case scenario if the selling pressure comes to a halt and investors sit on their hands, prices would fall to $1,200. If the selling pressure resumes, prices could fall to $1,000.
"It's great that investors aren't selling as much anymore but it doesn't solve the problem of growing supplies," he said.
Widmer said that although the selling pressure has eased off, he is still expecting to see more redemptions in GLD as expectations grow that the Fed will start to cut back on the bond-purchasing program known as quantitative easing.
"The selling is still coming. It may be slowing but it is still coming," he said.
Colin Cieszynski, senior market analyst at CMC Markets, said that the market is still fragile and he would not rule out more downside pressure. He added he sees strong support for GLD at $130 as the ETF tries to base fill.
"The panic selling has stopped but now it is just people quietly throwing in the towel," he said.
For now, Cieszynski remains bearish and said he would like to see prices hold above $1,400 an ounce before he expects investor sentiment to start to shift.
Analysts from TD Securities said in a research note on Wednesday they are also expecting to see weaker prices in the near-term. They said because prices could not break near-term resistance at $1,420, prices are likely to fall to the $1,355-$1,360 area.
"Look to sell minor rallies," they said in the report.
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By Neils Christensen of Kitco News firstname.lastname@example.org