ETF Securities Says Gold Investor Exit Probably Peaked in April
Sales of gold through exchange-traded products probably peaked in April and contributed to a record drop in commodity ETP assets in the second quarter, according to ETF Securities Ltd.
Sales of gold products accounted for 97 percent of a record $19 billion of net outflows from commodity ETPs in the second quarter, ETF Securities said in a report today. Commodity ETP assets fell to $127 billion from $186 billion at the end of March, with price declines accounting for two-thirds of the drop, it said.
Monthly net outflows from gold ETPs fell to $3.9 billion in June from $6 billion in May, Nicholas Brooks, ETF Securities’ head of research and investment strategy, said in an interview yesterday. They were $8.7 billion in April, when bullion plunged into bear market, he said. Gold dropped 23 percent in the second quarter, the most in data compiled by Bloomberg going back to 1920, as some investors lost faith in the traditional store of value and the U.S. Federal Reserve indicated it may start tapering its stimulus program.
“It may be that the peak of gold ETP selling is largely behind us,” Brooks said. “A lot of the bad news in gold has been priced in. The sentiment is extremely negative. When everyone is extremely negative, it’s usually a sign that you are closer to the bottom.”
Gold holdings in global ETPs dropped 589.4 metric tons this year to 2042.5 tons, the lowest since May 2010 and on pace for the first annual drop since before the products were introduced in 2003, data compiled by Bloomberg show. Hedge funds are holding the second-highest wager ever that gold prices will drop and banks from Goldman Sachs Group Inc. to Credit Suisse Group AG cut their forecasts last month.
Gold ETP sales by investors in North America accounted for 52 percent of outflows in June, down from almost 90 percent in April and 56 percent in May, Brooks said. Retail investors account for about half of gold ETP investments in the U.S. and about 20 percent in Europe, he said.
Fed Chairman Ben S. Bernanke said June 19 the central bank may slow its bond-buying program if the U.S. economy continues to improve. Gold for immediate delivery fell to $1,180.50 an ounce on June 28, the lowest level since August 2010.
Money managers pulled $2 billion from gold funds in the week ended June 26, according to Cambridge, Massachusetts-based EPFR Global, which tracks money flows. Total outflows from commodity funds were $2.68 billion, according to EPFR.
The Standard & Poor’s GSCI gauge of 24 commodities retreated 6.7 percent last quarter, led by silver and gold. The MSCI All-Country World Index of equities fell 1.2 percent as the dollar rose 0.2 percent against a basket of six currencies.
U.S. President Richard Nixon severed the dollar’s peg to gold in 1971 and the government lifted curbs on citizens owning gold at the end of 1974.
Platinum investments were “the one bright spot” in the second quarter with net inflows of $712 million on concern about supply from the top producer South Africa, ETF Securities said. Agriculture ETPs had $108 million in outflows on prospects for bigger crops, it said.
Investors have been using short ETPs, which bet on lower commodity prices, “more aggressively” in the past few months, particularly in copper and gold, Brooks said. Sometimes investors use short ETPs to hedge their long positions in mining equities, he said.
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