Gold ETP assets drop below 2,000 tons first time since 2010

July 9, 2013 06:44 AM

Holdings in gold-backed exchange-traded products fell below 2,000 metric tons for the first time since May 2010 after bullion slumped on expectations the Federal Reserve will taper stimulus measures.

Assets declined 24%, or 638.2 tons, this year to 1,993.76 tons, heading for the first annual drop since the products were introduced in 2003, and wiping $61 billion from their value, according to data compiled by Bloomberg. Holdings reached a record 2,632.52 tons in December as gold climbed for a 12th year, the data show.

Bullion slid 23% last quarter, the biggest loss since at least 1920, as some investors lost faith in the metal as a store of value and Fed Chairman Ben S. Bernanke indicated the central bank may slow asset purchases if the economy continues to improve. ETP assets may fall a further 500 tons in the next 12 months, UBS AG estimates. Holdings in the SPDR Gold Trust, the biggest such product, fell to a four-year low.

“A lot of investors are starting to exit their hedge against unorthodox monetary policy in the U.S.,” Dominic Schnider, head of commodities research at UBS’s wealth- management unit in Singapore, said in a phone interview today. “As an insurance asset, gold, which worked out so well for people in the past few years, is not attractive anymore.”

The decline in ETP holdings this year is equivalent to about 22% of mined output in 2012, which was 2,847.7 tons, according to the World Gold Council. Total gold demand was 4,405.5 tons last year, comprising 1,534.6 tons of investment demand in the form of bars, coins and ETPs.

Gold Slumps

At the peak in December, assets in gold ETPs were the world’s third-largest hoard when compared with national reserves. They have now fallen to fifth place behind the U.S., Germany, Italy and France, according to data compiled by Bloomberg and the council.

Prices plunged 25% in 2013 to $1,249.18 an ounce, sliding into a bear market in April and heading for the worst annual drop since 1981. The MSCI All-Country World Index of equities climbed 6.4% and the dollar gained 5.6% against a basket of six major currencies.

SPDR Gold Trust assets fell 1.6% to 946.96 tons, the lowest since February 2009, according to data compiled by Bloomberg. Billionaire investor George Soros joined funds run by Northern Trust Corp. and BlackRock Inc. in cutting holdings in the SPDR in the first quarter, U.S. government filings showed in May. John Paulson, the biggest investor, kept his stake of 21.8 million shares.

Paulson, Goldman

Paulson’s PFR Gold Fund posted a 23% decline last month, according to a letter to investors. The drop brings the loss to 65% since the start of the year, the firm said in a July 3 letter, a copy of which was obtained by Bloomberg News. The fund, with about $300 million in assets, consists mostly of Paulson’s own money and is the smallest at the firm, which manages $19 billion.

Goldman Sachs Group Inc. cut its price target for the end of 2013 to $1,300 from $1,435 and expects ETP holdings to decline by about 1 million ounces a month, it said in June. The bank joins analysts from Morgan Stanley to Credit Suisse Group AG in trimming forecasts.

“The real story for owning gold from a kind of an inflation protection perspective has just not materialized,” Jeffrey Sherman, who helps manage more than $57 billion of assets for DoubleLine Capital in Los Angeles, said in a telephone interview. “You’ve got to think about why you own the precious metal to begin with and right now it’s hard to make a very bullish case for it.”

Coins, Jewelry

Sales of coins and jewelry surged around the world after bullion plunged in April, spurring a 13% rebound in prices in less than three weeks. There are now signs interest has slowed, with the U.S. Mint selling 57,000 ounces of American Eagle gold coins in June from 209,500 ounces in April, according to data on its website. Sales from Australia’s Perth Mint declined for a second month in June, it said last week

U.S. President Richard Nixon severed the dollar peg to gold in 1971 and the government lifted curbs on citizens owning gold at the end of 1974.

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