Global ETF Selling Caused Recent Slip In Gold Prices

Gold prices in India fell every day this week, mirroring losses in the international market. Spot gold, the global benchmark for the precious metal's price, was down 0.8 percent this week to end at $1,872.95 per ounce, despite a rise in rates towards the end of the week.

Experts say that apart from the positive development on COVID-19 vaccine, withdrawals from gold-backed exchange-traded funds (ETFs) has caused a decline in rates.

Initial data compiled by Bloomberg shows that worldwide holdings in gold ETFs are starting to fall, possibly recording the first monthly contraction of the year in November. In August, the sudden surge in demand for ETFs had caused the metal's prices to hit all-time highs in India as well as abroad.

"Gold ETF holdings continue to fall as potential vaccines drive risk-on sentiment ... With this, net outflows over the past week have been over one million ounces," BMO Capital Markets commodities analyst Colin Hamilton was quoted on kitco.com on Thursday.

Pfizer seeks emergency use approval

This week Pfizer said that a final analysis of clinical-trial data has proved its COVID-19 shot to be 95 percent effective, allowing it to request for emergency use authorization with the US FDA (Food and Drug Administration).

Gold may look dull in the short term, but bullish in the long term

Armed with a vaccine, optimistic investors are expecting the global economy to pick up pace with governments and central banks returning to more prudent fiscal and monetary policy next year. While this outlook is bad for the metal in the short-term, re-surge in COVID-19 cases in the US and Europe is limiting the correction in gold prices.

However, with the possibility of an additional stimulus from the US government, the metal's appeal has improved as a hedge against likely inflation. In fact, the vaccine news is actually good for gold in the long-term because a pick up in economic growth strengthens inflation expectations without immediate implications for central bank policy.