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Gold ETFs aiming for 3,000t target Posted: Mon, 26 Jun 2006 [miningmx.com] -- GOLD-backed exchange traded funds (ETFs) would become targets of the world’s major investment funds within three to five years once the four established products had absorbed about 3,000 tons in demand, said Chris Thompson, former chairman of the World Gold Council (WGC). Thompson was seminal in founding the first ETF in 2003. “For small pension funds, the ETFs are already large enough to warrant their attention. But the major funds want to see a track-record and liquidity,” said Thompson on the sidelines of the London Bullion Market Association (LBMA) meeting. “These types of funds are always the last to adopt new products. But they’ll come. We need to have about 3,000 tons of gold in the vaults. That’s what I hope for.” Combined, the world’s gold-backed ETFs attract about $1bn in daily turnover, and have mopped up 500 tons of gold in demand. Currently, demand has been taken up by the retail market and investment advisory companies, Thompson said. StreetTracks, the US listed ETF, is the most successful of a group of products which includes listings in London, Johannesburg, and Gold Bullion Securities, the first gold-backed ETF which listed on the Sydney Stock Exchange in March 2003. Speaking at the conference, Thompson was deeply critical of past gold industry management for not doing enough to establish an alternative market for the metal. “We’re a one trick pony. “Incompetent is not the word to describe the industry. Maybe it’s because it’s run by mining engineers, or mad mining engineers,” he said. “We need alternatives and a better way to sell gold.” Thompson was arguing the need for investor demand in the gold market to help alleviate reliance on gold jewellery demand. Earlier, Kelvin Williams, former marketing director for AngloGold Ashanti, said that the gold jewellery market helped support the gold industry when it was ignored or openly ‘sold short’ by the fickle investment sector. “For gold producers who produce gold daily, weekly, and not seasonally, or cyclically, we need a buyer every day, every week, every month, all year,” said Williams. “It was physical demand from the booming jewellery markets of the world and particularly from the developing world that held the floor for the gold market during those tough years in the 1990s,” he said. The gold price sank to $260/oz in 2000. Gold jewellery consumption in 2005 totalled 2,735 tons, about 85% of total demand. The balance of primary consumption was from the dental and industrial sectors. “The problem with investment demand is that it’s a double-edged sword,” said Paul Walker, executive director of GFMS, a company that researches data on the metals markets. “Investment always rides on the back of jewellery.” But Thompson said the industry had had to be bailed out by the central banks when they negotiated the Washington Agreement in 1999. This was a deal that bridled official sector sales which had been growing notwithstanding continued good demand for gold jewellery in that period. Thompson also disclosed radical plans he once entertained while CEO of South African gold producer Gold Fields. If they had been implemented, his “personal stock options” would not have materialised “and you guys would be poorer too,” he told the audience at the LBMA meeting. This was a consideration that Gold Fields become a fully integrated company. In terms of the proposal, that Thompson said was discussed by board members, Gold Fields would buy its own refinery and produce jewellery which it would sell it in its own shops. But the plan, which was not proposed to the board, would have been ”disastrous”. Gold Fields would have lost its gold premium, bullion dealers would have been wrecked, he said. “If we’d made jewellery our future, we’d have had no future,” Thompson said.Free news alerts: click here to subscribe
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