Bloomberg News

Hold Holdings in ETPs Gain to Record as Demand Advances

July 04, 2012

Gold Holdings in Exchange-Traded Products Increase to Record

Gold has rallied for 11 years as investors seek to avoid weakening currencies and emerging markets such as China, the biggest user, raise consumption. Photographer: Victor J. Blue/Bloomberg

Gold holdings in exchange-traded products expanded to a record on increased speculation that central banks around the world will take more steps to boost their economies as growth falters.

Assets rose 4.6 metric tons to 2,412.42 tons yesterday, taking gains this year to 2.4 percent, data tracked by Bloomberg shows. The previous peak was 2,410.2 tons on March 13. Holdings have risen every year since at least 2004.

Goldman Sachs (GS:US) Group Inc., which describes gold as the so- called currency of last resort, said last month that bullion may rally to $1,840 in six months, citing prospects for further stimulus. Gold has rallied for 11 years as investors seek to avoid weakening currencies and emerging markets such as China, the biggest user, raise consumption.

“Over time, we’re still going to need to do some quantitative easing,” said Dominic Schnider, global head of non-traditional assets at UBS AG’s wealth-management unit. “In the short run, however, we are cautious. The market is oversupplied this year and that really calls for lower prices.”

Cash metal, which climbed to a two-week high of $1,625.07 an ounce yesterday, dropped 0.3 percent to $1,613.18 at 3:55 p.m. in Singapore. Immediately-delivery gold reached a record $1,921.15 an ounce Sept. 6.

Reports this week showed manufacturing from the U.S. to China deteriorated, fueling expectations that central banks and governments will do more to prop up their economies as Europe’s crisis hurts growth. European Central Bank officials are set to cut their main interest rate to a record low tomorrow, according to the median forecast in a Bloomberg survey of economists.

Increased Holdings

Investors raised ETP holdings 0.5 percent in the second quarter even as spot prices lost 4.3 percent, the worst three- month showing since 2008, as Europe’s crisis sparked a rally in the dollar. ETPs, which trade like shares, allow investors to hold commodities without taking physical delivery.

The Federal Reserve bought $2.3 trillion of debt in two rounds of so-called quantitative easing from December 2008 to June 2011 and gold almost doubled in that time. Last month, Fed policy makers didn’t decide to buy more debt, instead extending a program of replacing short-term bonds with longer-term debt.

Assets held in the SPDR Gold Trust, the biggest exchange traded product backed by bullion, account for more than half of total holdings compiled by Bloomberg. Paulson & Co., the hedge fund founded by billionaire John Paulson, is the SPDR’s largest stakeholder, owning 17.3 million shares as of March 31.

Blinder’s Forecast

Princeton University economist Alan Blinder, a former Fed vice chairman, said on July 2 that a third round of quantitative easing, by policy makers purchasing additional mortgage-backed securities, “is waiting in the wings.” Declining employment data in the U.S. may prompt the Fed to initiate fresh stimulus, according to BNP Paribas SA.

Gold-investment demand gained 13 percent to 389.3 tons in the first quarter, according to data from the producer-funded World Gold Council. The precious metal may rally in the second half, Marcus Grubb, the council’s managing director for investment research, said June 27.

To contact the reporters on this story: Glenys Sim in Singapore at gsim4@bloomberg.net; Debarati Roy in New York at droy5@bloomberg.net

To contact the editor responsible for this story: Jake Lloyd-Smith at jlloydsmith@bloomberg.net


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Companies Mentioned

  • GS
    (Goldman Sachs Group Inc/The)
    • $186.2 USD
    • -1.69
    • -0.91%
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