Investors are dumping gold-backed exchange traded products at the fastest pace since the securities were created a decade ago, mirroring the steepest price drop in 32 years.
Holdings in the 14 biggest ETPs plunged 31 per cent to 1,813.7 tonnes since the start of January, the first annual decrease since the funds started trading in 2003, data compiled by Bloomberg show. The removals erased $69.5 billion in the value of the assets as prices fell by the most since 1981. A further 311 tonnes will be withdrawn next year, according to the median of 11 analyst estimates compiled by Bloomberg.
ETP investments reached a record $148 billion last year, helping sustain the bull market that drove a more than six fold increase in prices since 2001 by offering a way to own bullion without needing to store it. The slump shows some investors losing faith in gold as a preserver of wealth after inflation failed to accelerate and the US Federal Reserve signalled it may curb stimulus. John Paulson, the biggest investor in the largest ETP, said last month he doesn't plan to buy more.
Gold for immediate delivery fell into a bear market, defined as a drop of 20 per cent or more, in April and traded at $1,234.60 an ounce at 12.32 pm on Monday in Singapore, down 36 per cent from the September 2011 record of $1,921.15. Only corn and silver fell more this year among the 24 commodities tracked by the S&P's GSCI Spot Index, which slipped 3.6 per cent. Goldman Sachs Group called bullion a "slam-dunk" sell in October and said it was among the bank's most bearish commodity forecas ..
ETP sales of more than 800 tonnes since the start of January, including by billionaire George Soros, exceeded total purchases in the previous three years. Paulson & Co cut its holdings in the SPDR Gold Trust, the biggest ETP, by half in the second quarter, while Soros and Third Point's Daniel Loeb sold their entire stakes.
Traditionally, investors turn to gold in times of turmoil as an alternative store of wealth to equities and the dollar and as an inflation hedge. Until 2003, most held gold bars, coins or jewellery in vaults or bought futures and options.
The introduction of gold-backed ETPs, which trade like equities, gave access to the metal without the need for arranging storage or dealing in derivatives. One futures contract traded on the Comex bourse in New York, equal to 100 ounces, costs $123,460 while a share in the SPDR Gold Trust, representing 0.1 ounce, is valued at $119.38.
ETPs backed by gold were created by Graham Tuckwell, an, Australia born entrepreneur who persuaded the producer-funded World Gold Council to back the proposal after the Australian Gold Council rejected his plan in 2002. The products are cheaper and more transparent than mutual funds, Tuckwell has said.
Tuckwell's ETF Securities oversees the second-largest gold-backed ETP. Zuercher Kantonal bank, Switzerland's biggest state-owned regional bank, and BlackRock, the world's leading money manager, are the next largest operators.
Some of the economic conditions that prompted investors to buy gold over the past few years no longer exist. The US unemployment rate that touched a 26-year high of 10 per cent in 2009 dropped last month to a five-year low of 7 per cent. The US economy grew at an annual rate of 3.6 per cent in the third quarter, the strongest in 18 months. Inflation in US is running at a 1 per cent annual rate, half the pace of past decade.
"Inflationary pressures are not strong," said Peter Richardson, chief metals economist at Morgan Stanley. "We're certainly not buyers" of gold, he said.
Mine output may also drop. The world's biggest producers, including Toronto-based Barrick Gold, took at least $26 billion of writedowns, cut spending and fired workers as prices fell and costs rose.
Paulson, the hedge-fund manager who said last year gold was his best long-term bet, told clients last month that he personally wouldn't invest more money in his gold fund because it's not clear when inflation will accelerate, according to a source.
While Paulson & Co sold half its stake in the SPDR Gold Trust in the second quarter, the investor remains the largest holder, with 10.23 million shares as of September 30, a Securities and Exchange Commission filing shows.
Soros, who called gold the "ultimate bubble" in 2010, increased his stake in the SPDR Gold Trust over five quarters starting from the three months through the end of September 2011. His company then lowered holdings in the two quarters through March, before selling the remainder in the three months to June, SEC filings show.
"Gold ETFs have fallen out of favour in 2013," said Mike McGlone, director of research at ETF Securities, citing the economic expansion, rising equity markets and prospects for tapering by the Fed. "We view 2013 as a correction in the longer-term structural gold bull market."
Read more at: Economic Times | India Times
No comments:
Post a Comment