Price fall hits gold ETP's holdings

SPDR Gold Trust sees US$30b wiped from its value as assets slump after global equity rally

PUBLISHED : Friday, 21 June, 2013, 12:00am
UPDATED : Friday, 21 June, 2013, 4:18am

Holdings in the SPDR Gold Trust, the world's largest exchange-traded product backed by bullion, fell below 1,000 tonnes for the first time in four years, wiping US$30 billion from the value of the fund in 2013.

Assets slumped 351.3 tonnes, or 26 per cent, this year to 999.56 tonnes, the lowest since February 2009.

Holdings reached a record 1,353.35 tonnes in December. John Paulson, the hedge fund boss, is the biggest investor.

Bullion sank to a 2-1/2-year low yesterday after the chairman of the US Federal Reserve, Ben Bernanke, said asset purchases may be reduced later this year as the economy strengthens.

The drop in holdings underscores how some investors have lost faith in gold as a store of value amid low inflation and a global equity rally.

Justin Smirk, senior economist at Westpac Banking Corp in Sydney, said: "As long as gold prices keep falling, particularly if gold keeps underperforming other asset classes, ETFs will continue to keep falling as people realise that gold isn't the perfect investment.

"The economy is improving, but it's not an inflationary story. It's a strong US dollar story, a weak equity story, and that takes away some risk."

Bullion has fallen 20 per cent so far this year, as the MSCI All-Country World Index of equities climbed 6.7 per cent, and the US dollar gained 2 per cent against six major currencies. Gold had risen for 12 years until 2012.

Bernanke said this week that the US central bank, which currently buys US$85 billion of Treasury and mortgage debt each month, may begin reducing purchases this year and end the programme in 2014 should the US economy continue to improve.

The price of gold fell more than 4 per cent to US$1,295 an ounce at midnight last night.

While prices rebounded from a more than two-year low of US$1,321.95 on April 16 as the rout spurred a purchasing frenzy from China to India and the US, they have tumbled 33 per cent from a record high of US$1,921.15 in September 2011.

Holdings in ETPs backed by gold shrank 517.4 tonnes, or 20 per cent this year, to 2,114.6 tonnes, the lowest since March 2011. Assets reached a record 2,632.52 tonnes in December.

The number of hedge funds investing in gold shrank to 290 in May from 310 in December, with their assets slumping 31 per cent this year to US$22.2 billion on losses and redemptions.

Mark Keenan, an analyst at Societe Generale, said this week: "The outflows from the ETF market have a disproportionate effect on the sentiment of the market because of their extreme visibility. We see about 800 tonnes coming out of the ETFs for this year."