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Golden magnet for investors
Allan Seccombe
Posted: Wed, 08 Oct 2008
[miningmx.com] -- GOLD held by exchange-traded funds (ETFs) reached a record 1,092 tonnes at the end of September, as investors sought a refuge from the storm battering global markets. Central bank sales have slowed to 357 tonnes.
Investors appear to be on the verge of panic in global equity markets, selling down their holdings and dragging bourses down by levels of magnitude not seen in 70 years, some commentators have said.
The International Monetary Fund (IMF) has increased its estimate of losses in the global financial meltdown to $1.4 trillion, Reuters reported.
In London, gold's morning fix was $913/oz, well up from Tuesday afternoon's fix of $876.75.
Between 2003, when the ETF product was launched, and the end of 2007, demand for gold in this investment vehicle accounted for 19% of offtake or 695 tonnes.
The signatories to the Central Bank Gold
Agreement have undertaken to limit their total gold sales in a year to 500 tonnes. With the state of the markets, Germany’s Bundesbank and the Swiss central bank have said they’re curtailing their gold sales.
“For the year ended-September, sales were less than expected at 357 tonnes relative to the 500 tonnes that were possible. We have seen some small purchases outside those signatories,” said Rozanna Wozniak, the investment research manager at the World Gold Council, a representative body of gold producers.
Coin producers are unable to meet demand in the United States and South Africa's Rand Refinery ran out of Krugerrand stocks after a large order from a Swiss buyer.
The latest data at the WGC shows jewellery demand in the three months to end-June 2008 was down 24% year-on-year, leading the overall decline of 19% in demand of 735.6 tonnes for the quarter, she said.
Demand for gold in the big off-take countries like India, China and the Middle East has picked up sharply with the weakening of the gold price.
In the ETF market, investors have poured in, pushing holdings to a record 1,092 tonnes. “We have seen some increased volatility (in ETFs), but we believe the core of these holdings are of a long-term nature,” Wozniak said.
Gold has tended to be less volatile than investments in other precious metals and asset
markets. “Despite a common perception to the contrary it’s not particularly volatile relative to other commodities and other major assets,” she said.
Silver had a volatility of 36.9% on over an average of 22 days to date. Oil was 34.2%, platinum 27.8%, the Nikkei 25.5%, the FTSE 23.2% and gold 19.8%.
She pointed out gold acted as a hedge against inflation and the dollar, it performed as a safe-haven asset in times of uncertainty and it serves as an asset portfolio diversifier, with relatively modest levels of volatility.
All these characteristics have been in evidence during the bull market of the last 6.5 years, she said.
“They’re not always pushing gold in the same direction and sometimes they can conflict,” she said, citing as an example the strengthening of the dollar against the euro recently, which conflicted with financial uncertainty driving investment into gold.
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