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Gold gains trigger ETF breakout Posted: Mon, 05 Dec 2005 [miningmx.com] -- THE demand for South Africa’s gold-backed exchange traded fund (ETF) is rising as the price of the dollar gold price soars to levels not seen in two decades. The outcome is the creation of thousands more ounces, said an ETF expert from Absa Corporate and Merchant Bank (Absa), the bank behind the scheme. “We’ve seen volumes increase quite a bit over the recent period and we’ve increased the size of the fund by 4,000 ounces,” said Vladimir Nedeljkovic, the structured products specialist at Absa. Another 8,000 ounces will be created this week. This will grow the total offering to 104,000 ounces. A JSE Stock Exchange News Service (SENS) announcement should be made before the end of the week regarding the 8,000 ounces, said Nedeljkovic, who was unable to say exactly when they would be listed. Each 4,000-ounce block is worth around R11m, bringing the total value after this week's launch to about R286m. The South African ETF was launched last November and some 90% of the uptake was from institutional buying. “It’s been quiet for a while, but in the last month we’ve seen quite a significant increase in the volume,” Nedeljkovic said. “It is quite exciting. It’s brilliant and we’re talking to some big investors.” Gold has broken through to levels not seen since February 1983 and on Monday reached up to $508.25. Investec’s John Clemmow said the price would hit $525/oz by the year-end and then remain at these levels for the first quarter of 2006. This was amid furious activity by funds and speculators, he said. “We’ve seen net buying. It’s basically the gold price,” Nedeljkovic said. Buying has been coming in spurts every time the gold price dips. Despite South Africa being the smallest market of the five markets offering the product - the others in order of size are the U.S., UK, Canada and Australia - it had a similar market penetration when one considered the relative sizes of the markets, Nedeljkovic said. “Our product is on a par with the combined two ETFs in the United States when you look at the size of the gold funds in proportion to the overall market size or market penetration.” South Africa is the world’s largest gold producer despite a declining production profile. Its mines are deep, dangerous and expensive, however. The smallness of the South African ETF market could be explained by the smallness of the investor grouping and investment needs, an analyst said. “Internationally there’s more need to hold gold because it offers risk diversification. In the South African market investors are exposed to gold anyway through the economy and the economy has been performing quite well,” he said.Free news alerts: click here to subscribe
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