Gold Assets in Biggest ETF Climb at Fastest Pace Since 2011

Jul 02, 2014 10:08 am ET

(Updates price in seventh paragraph.)

July 2 (Bloomberg) -- After shunning gold for more than a year, investors are starting to test the waters as they snap up holdings in the world’s largest bullion exchange-traded product at the fastest pace since 2011.

Assets in the SPDR Gold Trust, which counts billionaire John Paulson as its biggest holder, rose 1.4 percent to 796.39 metric tons in the two sessions through yesterday. That’s the biggest two-day gain since November 2011. Last year, more than 550 tons were sold from the fund as prices plunged 28 percent, the most in three decades.

Bullion rebounded 10 percent in 2014, outpacing gains for indexes of commodities, equities and Treasuries. The rally defied bearish predictions from Goldman Sachs Group Inc. and Societe Generale SA, who expected last year’s slump to continue. Instead, escalating violence in Iraq and tension between Ukraine and Russia boosted demand for a geopolitical hedge. The Federal Reserve has said that interest rates will stay low for a “considerable time,” raising inflation concerns.

“Gold got its initial pop because of Russia, and then Iraq happened,” Phil Streible, a senior commodity broker at R.J. O’Brien & Associates in Chicago, said in a telephone interview. “Also, the dovish outlook from the Fed is increasing interest in gold, and we are seeing some investors return.”

More than $73 billion was wiped from the value of the global gold ETPs last year as prices slumped. Bullion ended a 12-year bull run in 2013 after some people lost faith in the metal as a store of value amid an equity rally and muted inflation.

2014 Outflows

Gold buying is still down for the year. Assets in the SPDR ETF fell 0.2 percent since December, and last month reached the lowest level since December 2008. Investors pulled $319 million through June 30 from U.S. ETFs backed by precious metals, extending a holdings slump that began in early 2013, data compiled by Bloomberg show. That compares with a $44.1 billion inflow for equity funds in the first six months.

Today, gold futures for August delivery rose 0.1 percent to $1,327.70 an ounce at 10:06 a.m. on the Comex in New York, after yesterday reaching $1,334.90, the highest since March 24.

Prices will drop to $1,050 in 12 months, Goldman analysts reiterated in a June 23 report, unchanged from their outlook at the start of the year.

While the Fed said June 18 it sees interest rates staying low after it ends bond buying, the bank trimmed purchases for a fifth consecutive meeting, to $35 billion. Rising home and equity prices and an improving global economy should help stoke above-trend growth in the U.S., Fed Chair Janet Yellen told reporters that day.

“Although the overall macroeconomic backdrop remains unfriendly towards gold, with ongoing QE tapering, looming rate hikes and stocks at record highs, prices have generally been quite resilient,” UBS AG analysts wrote in a report yesterday. “That the aggressive ETF selling of 2013 has not made a comeback has provided ongoing support.”