Singapore / London - Investors are dumping gold-backed exchange-traded products (ETPs), which include exchange-traded funds (ETFs), at the fastest pace since the securities were created a decade ago.
Holdings in the 14 biggest ETPs have plunged 31 percent to 1 813.3 tons since the start of the year, the first annual decrease since the funds began trading in the US in 2003. Analysts expect another 311 tons to be withdrawn next year.
The amount held in ETPs reached a record 2 632.52 tons on December 20 last year.
“All the bullish factors we had pushing gold higher in the last 12 years are now going into reverse,” said Robin Bhar, an analyst at Société Générale.
“There will be more ETF selling in 2014 as the price goes lower,” said Bhar, who is ranked by Bloomberg as the most accurate precious metals forecaster over the past eight quarters.
But the pace of ETP outflows has slowed to about 40.7 tons a month on average since June, compared with 97.7 tons a month in the first half. Holdings have fallen 28.6 tons this month.
Lower prices were attracting some buyers and might boost ETP holdings next year, Nick Moore, a commodity strategist at BlackRock, said. He declined to provide a forecast.
Peter Sorrentino, a fund manager at Huntington Asset Advisors in Cincinnati, said 5 percent of its natural resources fund was allocated to gold and he wanted to double that, citing prospects for faster inflation, limited gold supply and strengthening Asian demand.
“At some juncture, all the money printing will come home to roost, and at that point the value of currencies will drop,” Sorrentino said. “Lots of metal has been migrating from West to the East.”
“Gold ETFs have fallen out of favour in 2013,” said Mike McGlone, the director of research at ETF Securities.
“We view 2013 as a correction in the longer-term structural gold bull market.” – Bloomberg