Gold goes East as consumers hoard jewellery

LONDON — Ownership of the world’s gold shifted further East during the first half of 2013, as Westerners dumped their exchange-traded holdings and, on the other side of the globe, Asian consumers responded to lower prices by adding to their hoards of jewellery and bullion.

This was the picture painted by the latest data from The World Gold Council, the mining industry trade body and research organization, which reported overall demand for gold 12% lower in the three months to the end of June than in the comparable period for 2012. Demand for the metal is currently running at 83pc of its five-year average.

The WGC attributed the slump to the massive sale by western investors, mostly in the U.S., who own gold through exchange-traded funds (ETFs). These vehicles work by linking reserves of gold — secured in bank vaults in or around Western capitals — to shares freely traded on the world’s major exchanges.

In the past decade these “physical gold ETFs” have grown vastly, gaining popularity among institutional and private investors alike. Gold owned via ETFs globally grew from 700 tonnes at the outset of the financial crisis in 2007 to a peak of 3,000 tonnes in 2012.

This timescale also saw the gold price rocket from around pounds 300 per ounce in January 2007 to more than pounds 1,100 in late 2011, an all-time high, propelled by the banking and eurozone crises and subsequent fears that QE and other central banks’ stimulus measures might give way to rampant inflation.

But the price flagged through 2012 and began a serious slide this January, triggering a stampede for the exit.

The WGC said even before Thursday’s data that ETF selling was “highly significant,” citing the sale of 150 tonnes in April alone. A net 400 tonnes were sold in April to June, the WGC said in its demand and supply report yesterday. Some sellers were doubtless private investors seeking to stem losses but titans of the investment world were also among those dumping ETF gold in the period, it has emerged.

Paulson & Co, the New York-based investment firm bearing the name of billionaire founder John Paulson, is among the largest investors in the SPDR Gold Trust, the biggest gold-backed ETF.

Paulson & Co halved its stake to 10.2 million shares in the three months ended June 30, from 21.8 million at the end of the first quarter, according to an official U.S. filing. The New York-based firm, which manages US$18-billion, cut its ownership for the first time since 2011 “due to a reduced need for hedging,” it said.

The Financial Post