Gold ETF investors perceived to be longer-term
The amount of gold held in exchange-traded products is near record highs and although the gold price is suffering from investors’ desire for the safety of cash, the risk of this $116 billion stash of bullion being jettisoned is distant.
Exchange-traded products assume a number of formats and essentially issue investors with either shares or notes in a fund whose assets are entirely made up of a physical product. The eight largest ETPs tracked by Reuters now hold over 70.0 million ounces, or 2,200 tonnes of gold.
This hoard of metal is almost equivalent to the holdings of the French central bank, the world’s fifth largest official holder of gold, or to a year of mine supply, and is worth about $116 billion based on the current spot gold price, which is up nearly 20 percent so far this year at $1,670 an ounce.
Gold ETPs are by far the largest in the entire exchange-traded commodity universe, accounting for 80 percent of the $187 billion invested in raw materials ETPs in November, according to asset manager BlackRock
“Gold is the trade of uncertainty,” Robin Bhar, analyst at Credit Agricole said. “I don’t think it’s been really acknowledged that if you want to own gold, (ETFs) are a great vehicle.
“You’ve got physical gold, you’ve got futures, you’ve got equities and ETFs, which are relatively cheap to own, so they’ve got a pretty solid place now in the mix of how you can get exposure to gold,” he said.
ETPs are established products that mainly attract large institutional players with deep pockets and generally speaking, a long-term investment strategy, such as pension funds.
“I suspect they are more for the medium to longer term investor,” said Bhar.
However, the investment vehicles are not immune to changes in taste. Palladium exchange-traded funds, for example, were major sources of demand for the metal in 2010, but the uncertainty that pervaded the markets last year turned ETFs into a source of oversupply for 2011.
Inflows into gold ETPs have been moderate in 2011 compared with last year. So far in this year, the major funds have drawn in around 5.05 million ounces of metal, based on the funds monitored by Reuters, compared with 10.8 million ounces of investment in 2010, according to figures from consultancy GFMS.
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