Sales of gold from exchange-traded products in 2013 have surpassed combined inflows over the past two years, with investors cutting holdings at a record pace as the metal tumbled into a bear market on reduced haven demand.
Global ETP assets contracted 10.27 metric tons to 2,177.12 tons yesterday, taking reductions to 454.8 tons this year, according to data compiled by Bloomberg. That’s more than the combined inflows in 2011 and 2012, which totaled 446.67 tons. Assets reached a record 2,632.52 tons on Dec. 20.
Gold fell 17 percent this year on expectations the Federal Reserve may scale back the stimulus that helped the metal cap a 12-year bull run in 2012. Prices are going to get crushed as inflation remains subdued and risks of bad events diminish, according to Credit Suisse Group AG, which forecasts a drop to $1,100 an ounce over 12 months. Filings this month showed George Soros and BlackRock Inc. cut ETP stakes in the first quarter.
“The ETF sales have been coming out at the same pace that we mine gold each year, so effectively that doubles current supply,” said Steve Land, lead portfolio manager at Franklin Templeton Investments’ Franklin Gold and Precious Metals Fund, which has more than $1.34 billion in assets under management. “The market has had a lot of metal to absorb.”
Gold for immediate delivery traded at $1,387.99 an ounce at 10:04 a.m. in London after rising 0.8 percent. The price reached a more than two-year low of $1,321.95 on April 16 as the dollar strengthened and optimism increased that the U.S. will lead a global recovery.
ETP holdings have fallen 17 percent in 2013 after expanding every year since the first product was listed in 2003, data compiled by Bloomberg show. ETPs trade like shares and enable investors to hold commodities without taking physical delivery.
Assets in the SPDR Gold Trust, the biggest gold-backed ETP, fell to 1,023.08 tons yesterday, the lowest since February 2009, data on the company’s website show. Soros Fund Management LLC lowered its investment in that product for a second straight quarter in the three months to March 31, a May 15 filing showed.
The SPDR holdings will probably drop a further 2 million to 4 million ounces (62 to 124 tons), Deutsche Bank AG said May 14. About 50 percent of the SPDR’s metal is owned by institutional investors, with the rest held by retail investors, and a third of institutions holding bullion will probably keep it, Deutsche Bank said in a report.
Gold will trade below $1,000 an ounce in five years, Ric Deverell, head of commodities research at Credit Suisse, said on May 16. The need to buy gold for wealth preservation has declined and the probability of inflation on a one- to three-year horizon has diminished significantly, he told reporters.
“There definitely seems to be a little bit of panic that people don’t want to overstay the strong market that we’ve seen over the past 12 years,” Franklin’s Land said in an interview today. “They’re not sure why other people are selling, so they feel like they need to get out as well.”