China’s First Gold Exchange-Traded Funds Miss Targets
China’s first two exchange-traded funds backed by bullion raised less money than planned as investor demand for gold waned amid a rout in prices.
Huaan Asset Management Co. and Guotai Asset Management Co. attracted 1.2 billion yuan ($195 million) and 410 million yuan, respectively, for funds to be listed on the Shanghai Stock Exchange, according to a statement by Huaan and Li Yebin, a spokesman at Guotai. Huaan last month said it wanted to raise as much as $400 million initially, while Guotai said that amount might be a “conservative” target.
The funds, which are enough to buy about 6 metric tons, will start trading with prices near levels last seen in 2010 and as a liquidity crunch in China attracts investors to fixed-income securities. Buyers who snapped up jewelry, coins and bars in April when bullion slipped into a bear market, are holding back now as prices fall further and as government bonds offer higher yields, according to China Galaxy Securities Co. China is top producer and second-biggest consumer of the precious metal.
“Enthusiasm is ebbing with prices dropping further than people expected when they bought in mid-April,” said Zhang Yifan, a strategist at China Galaxy in Shanghai. “Most of them now are taking a wait-and-see attitude before committing to buy any more.”
Gold for immediate delivery slid as much as 39 percent from a record $1,921.15 an ounce in September 2011 on June 28, before trading at $1,290.70 at 3:08 p.m. in Shanghai. Gold of 99.99 percent purity on the Shanghai Gold Exchange traded at 258.99 yuan a gram ($1,354 an ounce).
Assets in global exchange-traded products backed by bullion fell almost 25 percent this year, erasing about $60 billion from the value of the funds, data compiled by Bloomberg show. Holdings in the SPDR Gold Trust, the world’s largest bullion ETF, fell to 939.07 tons as of last week, the lowest since 2009.
Yields on China’s 10-year bonds surged seven basis points last month, the most since October, according to Chinabond indexes. The benchmark securities yielded 3.612 percent as of yesterday.
While banks including Goldman Sachs Group Inc. forecast more declines amid a debate that bullion’s 12-year bull run is at an end, China Galaxy’s Zhang said the long-term outlook remained bullish for Chinese institutional investors to increase holdings in their portfolios.
Physical gold delivered to buyers by the Shanghai Gold Exchange, China’s largest bullion bourse, in the first half of this year almost matched the entire amount taken from its vaults in 2012, and was more than double the country’s annual production. The country produced a record 403 tons of gold last year, according to the China Gold Association.
The government approved the two exchange-traded funds in June. The country’s gold demand last year amounted to 776.1 tons, of which 265.5 tons was in the form of bar and coin investments, according to the World Gold Council.
Hedge funds increased bets on higher gold prices for a second week, U.S. Commodity Futures Trading Commission data for July 9 show, as Federal Reserve Chairman Ben S. Bernanke backed sustained stimulus for the foreseeable future.
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