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Money gushes into SA gold ETF
Allan Seccombe
Posted: Fri, 09 Nov 2007

[miningmx.com] -- SOUTH AFRICAN investors, both institutional and retail, have poured cash into the domestic gold-backed exchange-traded fund NewGold, particularly when the metal’s price tore through the $800 level, said Byron Woods, the market maker for the product.

The ounces in NewGold have doubled in the first 10 months of this year and now stand at just below 610,000 oz, with a net asset value above R3bn. In the latest news, NewGold has issued an additional 1.2 million debentures for 11,856 oz at an issue price of R52.75 each

Listed companies have turned in a poor performance compared to the stellar gold price as soaring costs eat into profits and reduce returns to shareholders.

Since January of 2005 the dollar price of gold has doubled and the South African gold ETF followed suite, albeit a little delayed. The number of ounces held has doubled since January this year.

Traditionally, South Africans opted for exposure to physical gold by buying the Krugerrand coin because they are not permitted to hold unwrought gold. However, the coins are not as liquid as the ETF product.

“When the gold price broke through $800 investors dived in like you can’t believe and we had an exceptionally busy day on Monday,” Woods told Miningmx. “There wasn’t a single person profit taking. It was purely buying.”

Investor interest tailed off as the gold price bounced between a 28-year high of slightly higher than $845/oz -- just shy of the January 1980 high of $850 – and $823.

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“Obviously people have stepped back a bit because we aren’t pushing in one direction over the past couple of days and we’re seeing a bit of a correction. People are a little more hesitant at the moment,” Woods said.

Buying is coming in when the gold price dips or the rand shows strength.

It is difficult to forecast what investors will do, but investors sat tight on the $845 peak this week.

“Surprisingly, we didn’t see profit taking. People tend to be holding for a long-term basis,” Woods said.

Anything is possible with the gold price, with the unprecedented weakness of the dollar against the euro, the fallout from the subprime situation, record high oil prices near $100 and the knock on effect that will have on global inflation, stock markets and interest rates.

“Once we breach $850 we’re in unknown territory and anything can happen. It will be interesting to see if we have any heavy profit taking, but once we break that it could run quite quickly. Anything is possible,” Woods said.