Deutsche Bank Sees SPDR Gold Falling 2-4 Million More Ounces
Holdings in the SPDR Gold Trust (GLD), the biggest gold-backed exchange-traded product, will probably drop another 2 million to 4 million ounces as most institutional investor sales have occurred, Deutsche Bank AG said.
The product’s assets slid about 9.7 million ounces since mid-December, when global gold ETP holdings reached a record, according to the provider and data compiled by Bloomberg. About 50 percent of the SPDR’s metal is owned by institutional investors, with the rest held by retail investors, Deutsche Bank said in a report today. One-third of institutions holding bullion will probably keep it.
“We expect that the bulk of the drawdown comes from institutional investors rather than retail investors,” Deutsche Bank said in the report. “If in fact only institutional selling is occurring in the gold ETF then we expect that nearly two-thirds of the selling that is likely has probably already passed. As SPDR is roughly half of total physically backed ETFs, this could imply a further 4 to 8 million ounces selling if macro fundamentals continue to move against gold.”
Global gold ETP holdings slid 15 percent this year, after climbing every year since the first product was listed in 2003, data compiled by Bloomberg show. Prices that rallied as much as sevenfold in the past 12 years entered a bear market last month as inflation failed to accelerate and mounting optimism that the U.S. will lead a global economic recovery helped push the Standard & Poor’s 500 Index of equities to a record.
Gold for immediate delivery traded at $1,437.78 an ounce by 9:38 a.m. in London and is down 14 percent this year. Prices reached a two-year low of $1,321.95 on April 16, two sessions after entering a bear market. Bullion reached a record $1,921.15 in September 2011.
Holdings in the SPDR fund reached a more than four-year low of 33.806 million ounces on May 8 and were at 33.811 million ounces yesterday, according to its website. Billionaire John Paulson owns the largest stake in the product. He’s standing by the metal even after his Gold Fund saw declines of about 47 percent this year, according to two people familiar with the matter.
Continued ETP sales could imply further “downside risks” of $60 to $120 in gold prices, Deutsche Bank said in its report, basing its estimate on regression analysis using data from 2003.
Still, this year’s slide in prices spurred demand for physical metal, with the U.S. Mint saying April 23 it ran out of its smallest gold coins. India’s bullion imports may surge 47 percent to 225 metric tons in the second quarter to meet consumer buying, according to the All India Gems & Jewellery Trade Federation. Imports by China from Hong Kong more than doubled to an all-time high in March.
“Given unprecedented retail buying of gold jewelry and coins recently, retail demand could surge again if prices dip below $1,400 an ounce as jewelry and investment buyers look to take advantage of the retracement in prices,” Deutsche Bank said.
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