Tags: ETF | gold | money | demand

Experts: ETFs May Provide Key to Movements in the Price of Gold

By    |   Monday, 06 May 2013 03:36 PM

Following the price of gold may require tracking exchange-traded funds (ETFs) in the precious metal, according to The Wall Street Journal.

"The overall gold market isn't that big," Eric Marshall, portfolio manager at mutual-fund manager Hodges Capital Management, told The Journal.

"Creating even a small amount of incremental demand through these ETFs, and making [gold] investible in a way it wasn't previously, definitely does have an impact on prices. That impact works to the downside just as it did to the upside a few years ago."

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Prices posted the largest two-day decline in more than three decades in mid-April. The metal gained 4.9 percent in the past two weeks after entering a bear market April 12, according to Bloomberg.

"You watch the flow of money, and if there's money flowing out of the ETFs, it's going to negatively impact the price of gold," Jim Wyckoff, senior analyst at precious-metals dealer Kitco Metals, told The Journal. "No matter what the supply-and-demand fundamentals [for physical gold] may suggest, if that money's flowing, those prices are going to move."

The SPDR Gold Shares ETF, with a recent $50 billion in assets, contributed a "significant portion" of demand in recent years. The World Gold Council estimates approximately $236 billion of gold was purchased in 2012, according to The Journal.

The trade group of gold miners said about 6 percent of that demand came from ETFs, of which SPDR Gold Shares was by far the largest. In 2009 and 2010, near the height of the gold bull market, ETFs accounted for about 13 percent of demand, according to the Council.

However, a World Gold Council official rejects the idea that ETFs have a predominant role in the price of gold. "ETFs are a new, clever way for investors to access the gold market, but they're not replacing or dominating investment, which is still dominated by bars and coins," said Jason Toussaint, chief executive of the council's World Gold Trust Services unit, which manages a fund that is sponsored by the Council for marketing agent State Street Global Advisors.

Those who buy coins and bars — accounting for 29 percent of gold purchases in 2012, according to the World Gold Council — tend to be long-term holders of the precious metal.

Spot gold was trading at $1,469.60 per ounce late Monday afternoon.

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Following the price of gold may require tracking exchange-traded funds (ETFs) in the precious metal, according to The Wall Street Journal.
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2013-36-06
Monday, 06 May 2013 03:36 PM
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