Exchange-traded funds have made investing in gold easy.
So easy, in fact, that if they continue to grow at the present fast rate, they could start to create a real squeeze on gold supplies, The Wall Street Journal reports.
Trusts have added 306 metric tons of gold to their vaults in the first seven weeks of the year, says Barclays Capital Analyst Suki Cooper.
That's just short of the 322 tons added in all of 2008.
If that rate continues, this year's gold ETF purchases would replace jewelry as the top source of demand, further increasing the cost of the precious metal.
Normally, low inflation rates and a strengthening dollar would make the gold market weaker. Yet gold has risen 13 percent this year as investors worried about the possibility of further financial collapse seek to hedge their bets.
"While all this uncertainty is out there, investment demand by all accounts is going to sustain gold demand," Rozanna Wozniak, investment research manager at the World Gold Council, told Reuters, adding that investor demand for gold coins, bars, and gold proxy ETFs continues to surge.
ETFs sponsored by the WGC — which launched the first gold ETF in 2003 — hold about 12,200 tons of gold worth $38 billion and account for 85 percent of the market.
Even though consumers have cut back, demand for gold jewelry fell in only two countries last year, Wozniak said: the United States and Britain.
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