Gold ETP Assets Shrink Most Since July After Prices Slide on Fed

Sales of gold from exchange-traded products were the most in more than five months last week as the Federal Reserve began to reduce stimulus and bullion closed at the lowest level in more than three years.

Assets in the 14 biggest exchange-traded products dropped 27.78 metric tons to 1,785.52 tons in the week ended Dec. 20, the most since the period to July 5. Holdings reached a record high of 2,632.52 tons on Dec. 20, 2012, according to data compiled by Bloomberg.

Investors sold 846.4 tons from bullion-backed ETPs in 2013, more than the combined inflows in the previous three years, as prices tumbled 28 percent and headed for their worst annual loss since 1981. Gold ended at the lowest level since 2010 on Dec. 19, a day after the Fed said it will scale back stimulus that helped the metal cap a 12-year bull run in 2012.

“Investors have been liquidating gold holdings for most of the year and as the Fed finally moved to taper, it prompted further outflows,” said Wang Xiaoli, the chief investment strategist at CITICS Futures Co., a unit of China’s biggest listed brokerage.

ETP holdings shrank 32 percent in 2013 after expanding every year since the first product was listed in 2003, erasing about $73 billion in the value of the assets as prices sank, data compiled by Bloomberg show. A further 311 tons will be withdrawn next year, according to the median of 11 analyst estimates compiled by Bloomberg.

The products trade like shares and enable investors to hold commodities without taking physical delivery.

Fed Tapering

Gold for immediate delivery traded at $1,200.95 an ounce today from $1,203.30 on Dec. 20, when prices rose 1.2 percent. Bullion closed at $1,188.68 on Dec. 19, the lowest since Aug. 3, 2010, as the Fed said that it will lower monthly asset purchases to $75 billion from $85 billion, citing an improved outlook for the U.S. jobs market.

The Fed also said it will probably hold key interest rates within the current range of zero to 0.25 percent “well past the time that the unemployment rate declines below 6.5 percent.” The central bank may reduce its bond purchases by $10 billion in each of its next seven meetings before ending the program in December 2014, according to the median forecast in a Bloomberg survey of 41 economists conducted on Dec. 19.

Gold prices that peaked in 2011 are falling as the global economy recovers and unprecedented money printing failed to stoke inflation. While assets in the SPDR Gold Trust, the biggest gold-backed ETP, climbed 5.4 tons to 814.12 tons as of Dec. 20, rising for the first time since Nov. 6, holdings slumped 40 percent this year, data compiled by Bloomberg show.

The SPDR’s biggest shareholder John Paulson, who backed bullion as recently as April, told clients at his firm’s annual meeting last month that he personally wouldn’t invest more money in his gold fund because it’s not clear when inflation will accelerate, according to a person familiar with the matter.

To contact the reporter on this story: Glenys Sim in Singapore at gsim4@bloomberg.net

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

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