Gold Assets in World’s Biggest ETP Fall to Lowest Since 2008

  • Holdings in SPDR Gold ETP drop for seventh straight day
  • `The case for investing in gold' is going away: Dragosits

Gold assets held in the world’s biggest exchange-traded product backed by the metal fell to the lowest since the financial crisis.

Holdings in SPDR Gold Shares slid 0.4 percent on Monday to 666.11 metric tons, the lowest since September 2008. That’s the month that Lehman Brothers Holdings Inc. collapsed, spurring a rout across global markets. Assets fell for a seventh straight session, the longest streak since July.

Gold prices have been trapped in a bear market as the economy’s recovery from the crisis sent equity markets rallying and cut demand for haven assets. Now, with steady gains for U.S. employment, Federal Reserve officials have signaled that they’re ready to start raising interest rates for the first time in nine years. Higher rates cut the appeal of bullion because it doesn’t pay interest, unlike competing assets.

“If we’re moving towards an era of increasing interest rates, the case for investing in gold goes away,” Mike Dragosits, a senior commodity strategist at TD Securities in Toronto, said in a telephone interview. “You shift away from gold, which is generally a safe haven. As the cost of carry rises, that safe-haven demand decreases, and you find other areas for growth in your portfolio.”

Gold futures for December delivery added 0.4 percent to $1,091.90 an ounce Tuesday on the Comex in New York. Prices are down 7.8 percent this year and reached a five-year low of $1,073.70 in late July.

Last week, global holdings in bullion ETPs fell 26.9 metric tons, the most since July. A government report Friday showed accelerating growth for U.S. jobs. Gains for the labor market make bullion less appealing as a haven asset and increase the chances that Fed officials will start tightening monetary policy.

“You’re seeing some of the asset flows in the ETFs after that payrolls number,” Dragosits said.

After Lehman’s bankruptcy, the world’s central banks unleashed unprecedented monetary stimulus, sending bullion to a record in September 2011 on bets that inflation would accelerate. Instead, consumer costs stayed stable, and the precious metal is heading for a third straight annual loss, the worst slump for futures since 1998.

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