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A Rush For Gold Trusts In Market Maelstrom

BW Online Bureau Nov 08, 2014

<?xml version="1.0" encoding="UTF-8"?><root available-locales="en_US," default-locale="en_US"><static-content language-id="en_US"><![CDATA[Panicky investors rushing for a safe haven because of uncertain global economic growth and debt crises helped drive cash into gold trusts, underscoring record highs for spot gold prices, data from Lipper shows on Thursday. In the week ended Aug. 10, two of the largest gold trust funds which issue their shares backed by gold bullion -- SPDR Gold Trust and iShares Gold Trust -- had their fourth biggest week of net inflows, the data shows. The SPDR Gold Trust, launched in November 2004 and now with $73.9 billion in assets under management, pulled in a net $1.9 billion in fresh cash in the latest week. However, the surge in spot prices during the reporting week lifted assets under management by nearly $8 billion. The iShares Gold Trust, launched in January 2005, had net inflows of $265 million, bringing the AUM, with market price movements, up nearly $800 million to $9.4 billion. "There's probably institutional people who buy into it as well, but it is probably a good measure of what your average investor is going to look at if they want to buy gold. It is the only avenue other than buying the physical itself, which is really not that feasible," said Matthew Lemieux, analyst at Lipper. The last time the weekly inflows for the SPDR Gold Trust fund reached these levels was in late February 2009, just prior to a rebound in the stock markets. "People are panicking, seeing the stock market drop and volatility rise, so they go into gold as a default move. But it doesn't measure how far this downturn goes or whether it is going to turn around," Lemieux warned. Early on Thursday spot gold topped $1,800 an ounce before tumbling more than $60 on concerns over Europe's deepening credit crisis and the possibility of contagion being felt in French banks. Fear And Love The fear the sovereign debt crisis which slammed Greece, undermined Ireland, Italy, Portugal and Spain and could impact other nations such as France, spurred the gold buying at a time when gold prices, historically are at a seasonal bottom. However, the start of the Muslim holy month of Ramadan kicks off a seven month long string of holidays where gold buying peaks with the Chinese New Year in February. "You have the fear trade and love trade showing up at the same time," said Frank Holmes, the head of San Antonio, Texas-based U.S. Global Investors, a boutique investment firm specializing in emerging markets and natural resources. "The fear trade has basically taken gold mathematically over 30 percent in the last 12 months. That means gold is up two standard deviations. That means mathematically there is a high probability of a correction," said Holmes. Holmes believes there could "easily" be a 7 percent to 15 percent gold correction before rising again to reach $2,000. He reiterated his forecast of a doubling in gold prices over the next five years as the developed nations of Europe and the United States devalue their currencies while emerging markets continue to grow. Gold mining companies however have not kept up with the rise in bullion. They were caught in the waves of selling over the last three weeks that saw the U.S. stock market bounce in yo-yo fashion. The benchmark Standard & Poor's 500 stock index on an intraday basis fell as much as 18 percent since July 22 but has rebounded slightly. Companies such as Newmont Mining, which is down over 5 percent in the year-to-date period, have been sold off with the market. "It has been sold down as people said they would buy bullion, not gold stocks. That shows you the degree of fear. It is a combination of retail and institutional, but we are seeing a shift, that the valuation is becoming compelling to buy dividend paying gold stocks," said Holmes. (Reporting by Daniel Bases; Editing by Diane Craft) (C) 2011 Reuters Limited. All rights reserved. Republication or redistribution of Reuters content, including by framing or similar means, is expressly prohibited without the prior written consent of Reuters. Reuters and the Reuters Sphere logo are registered trademarks and trademarks of the Reuters group of companies around the world. (Reuters)