Gold Exchange-Traded Products Poised for Record Monthly Decline

Gold held in exchange-traded funds and products backed by the metal is set for the biggest monthly drop ever, after investors sold out of bullion on optimism the global economy is recovering.

Assets in ETPs fell 168.22 metric tons to 2,281.62 tons as of yesterday, heading for the biggest monthly drop on record in tonnage terms, data compiled by Bloomberg show. At today’s price, the decline in holdings is valued at about $8 billion. Gold for immediate delivery fell 0.2 percent to $1,474 an ounce by 9:24 a.m. in Singapore, set for a 7.8 percent slide in April in its worst monthly loss since December 2011.

Gold tumbled into a bear market this month as equity markets rallied on improving global growth and weakening expectations for inflation. Prices plunged 14 percent in the two sessions to April 15, the most since 1983, and hit a low of $1,321.95 an ounce on April 16. Since then, spot bullion has rebounded 11 percent, as a surge in physical demand offsets record ETP outflows.

“We have seen a lot of selling in ETFs and recently we see a lot of physical buying, so there has been some conversion from ETFs into physical gold,” said Frederic Panizzutti, global head of marketing and sales at bullion refiner MKS (Switzerland) SA.

Global holdings have dropped 13 percent this year as assets held in the SPDR Gold Trust, the largest bullion ETP, tumbled 20 percent. SPDR gold assets slumped to 1,080.64 tons yesterday, the lowest since September 2009, and are down 11.5 percent in April. John Paulson, the largest investor in the SPDR, has stuck with his view that the metal will climb as a hedge against inflation.

Retail Demand

The risk of further ETP outflows would subside if prices recover to above the $1,500 level or equity markets underperform, according to Barclays Plc. The Standard & Poor’s 500 Index of equities reached an all-time high yesterday and has more than doubled from its 12-year low in 2009. The key question in the near term is whether retail and jewelry demand can continue to counter ETP outflows, Barclays analysts including Suki Copper wrote in a note yesterday.

“At best, the outlook is mixed,” said Jeffrey Rhodes, global head of precious metals at INTL FCStone Inc. “For the first time in many years, you’ve almost got an equal number of bulls as bears. The collapse in price happened right as we were on the cusp of a major period of physical demand in India and having had that washout over two days, it didn’t take long for the physical market to come to the table.”

The plunge in gold prices has set off a purchasing frenzy among coin and jewelry buyers from China to the U.S. Coin demand from mints in the U.S. and Australia to the U.K. is soaring, while the volume for the benchmark cash contract on the Shanghai Gold Exchange was more than four times last year’s daily average every day since April 16. Premiums to secure supplies in India jumped to five times the level before the slump. China and India are the world’s largest buyers.

To contact the reporter for this story: Glenys Sim at gsim4@bloomberg.net

To contact the editor responsible for this story: James Poole at jpoole4@bloomberg.net

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