Gold ETP Holdings Record Decline, Drop $17.9 Billion

May 1, 2013 at 08:55


Gold holdings in exchange-traded products plunged 174 metric tons last month, the biggest drop ever, as prices entered a bear market and wiped $17.9 billion from the value of the funds.

Holdings in the ETPs slumped 7.1 percent in April to 2,275.84 tons, the lowest since October 2011, data compiled by Bloomberg show. The value of the assets dropped to $108.1 billion. Investors pulled $10.23 billion from gold funds in the first quarter, the most since at least 2000, when the data begins according to Cambridge, Massachusetts-based EPFR Global.

The drop in ETP holdings underscores how some investors have lost faith in gold as the traditional store of value, even as central banks print money on an unprecedented scale to boost growth. While prices have rebounded since touching a two-year low on April 16, they fell 7.7 percent last month, the biggest loss since December 2011, as the stock market rallied and consumer costs remained stable.

“This is a capitulation by gold investors as equities were winning and there were no signs of inflation,” Tom Winmill, who helps manage $200 million of assets in Walpole, New Hampshire, for Midas Funds, said in a telephone interview. “Many have seen the reasons for holding gold fade.”

Gold futures for June delivery rose 0.1 percent to $1,473.80 an ounce today on the Comex in New York. Prices are down 12 percent this year, heading for the first decline after 12 straight years of gains. The MSCI All-Country World Index of equities is up 8.6 percent in 2013, while dollar climbed 2.4 percent against a basket of six major trading partners.

Gold in New York capped its worst two-day slump in 33 years on April 15, plunging 13 percent. The metal’s drop has been “surprisingly rapid,” according to Goldman Sachs Group Inc. The bank said April 23 it closed a bearish recommendation, while saying further declines are still likely as investors’ conviction in the metal wanes.

About half the holders of the SPDR Gold Trust, the biggest bullion-backed ETP, are institutional investors, Deutsche Bank AG said on April 26 in a report, citing Bloomberg data. The institutions may continue to sell as they switch into equities, the bank said.

Prices rebounded 4.2 percent last week, after four straight declines, as demand surged from consumers buying coins and jewelry. Billionaire John Paulson has stuck with his view that the metal will climb as a hedge against inflation. He’s the top holder of the SPDR Gold Trust.

Gold-coin sales by the U.S. Mint in April climbed to the highest monthly total since December 2009. Russia and Kazakhstan boosted reserves for a sixth month in March, International Monetary Fund data shows. Central banks will buy as much as 550 tons this year after boosting holdings by 534.6 tons last year, the most since 1964, the World Gold Council estimates.

“The reasons why people were piling into gold have not changed,” Douglas Groh, who helps manage $10 billion at Tocqueville Asset Management LP, said in a telephone interview from New York. “The long-term buyers are accumulating gold.”

Hedge funds and other money managers have accumulated their second-biggest bet against gold on record, holding 69,726 so- called short contracts as of April 23, government data show. The decline in ETP holdings remains the “key downside risk” for prices in the near term, analysts at Barclays Plc including Suki Cooper said in a report.

Holdings in ETPs backed by silver slumped 1.4 percent in April to 19,405.34 tons. Assets in funds backed by palladium and platinum also declined.

“Participants exiting the market continues to represent bearish sentiment,” said Erica Rannestad, an analyst at New York-based CPM Group, a commodities researcher. “Many are dumping gold as an investment alternative and moving part of their money to stocks.”