SA gold ETF to break $1bn level

Ines Schumacher | Tue, 26 May 2009 13:29

[miningmx.com] -- DEMAND for gold amid the onset of a technical recession in South Africa could help push total holdings of the exchange traded fund (ETF) NewGold to record levels, the product's sponsor, Absa, said today.

NewGold issued 800,000 debentures on Tuesday valued at R76.50 per debenture, adding 7,800 ounces (oz) of gold to its holdings. There has been a spate of new debentures issued by the provider this month.

“If current trends continue, we will reach $1bn soon,” head of ETFs and index products at ABSA bank Vladimir Nedeljkovic told Miningmx.

NewGold expects to list debentures for 24,000 oz in coming days that are worth R190m if the gold price and rand exchange rate stay steady, he said.

With NewGold holding R957m worth of gold at present, the next debenture listing will push it above the $1bn threshold for the first time.

At the end of April, NewGold delisted 2.8 million debentures as a result of the redemption of about 27,502 fine troy oz of gold bullion.

It has since then added more than 70,000 oz of gold, leaving it with an inventory of 997,971 oz.

“We are seeing increased demand for ETFs, which is just normal market trading activity related to the rising gold price and a strengthening of the rand against the dollar,” Nedeljkovic said.

The demand for gold coins has also hit an all time high, the SA Gold Coin Exchange said.

"The rapidly growing demand for gold coins strongly suggests that the gold bull market is well set to extend itself strongly into the future," said chairperson Alan Demby in a statement.

The value of the exchange's gold coin sales during 2008 was 80% higher than the previous year.

Fortis Bank’s metals monthly report for May highlighted that in April there was a “complete absence" of capital flows into gold ETFs and it instead saw a withdrawal of 1.4 tonnes of gold bullion from the 16 ETFs that Fortis monitors. However, it had seen renewed demand in May.

A number of market commentators see gold moving above $1,000/oz because of the state of the global economy. It is trading at $944/oz.

Once NewGold breaks through the $1bn level, it will have a quarter of the value the United Kingdom gold-backed ETF holds at $4.1bn. The United States is sitting at $35bn worth of gold bullion ETFs.

Gold holdings in ETFs have surged to record highs as investors seek out safe havens for their wealth in the face of volatile stock markets, a weakening dollar and inflation concerns during the global economic meltdown.

In February, NewGold moved its gold to Britain after it ran out of domestic storage space because of strong demand for its product.

South Africans are not permitted to hold unwrought gold, meaning they can only purchase gold jewellery or coins. The ETF gives investment exposure to physical gold without the risk of owning the metal themselves.

NewGold Gold Bullion Debentures are securities backed by physical gold and listed on and traded through the JSE. Each ETF represents on tenth of a troy ounce of gold.