NEW YORK (Commodity Online): As the year ends to a close, gold price is getting ready to greet the New Year with a historic high of around $1400 per ounce. What is the underlying bullion barometer that is sustaining the ongoing bullish rally in gold price?
Bullion experts say that the strong, current yellow metal price is sustaining thanks to the huge investor demand for gold exchange traded funds (ETFs). “Gold ETFs have been in great demand in 2010. Largely, it is the Gold ETFs that are supporting the strong, historic rally in gold price,” says David Wilson, a bullion analyst.
The week started with Comex gold futures prices ending modestly higher on Monday on fresh safe-haven investor buying demand. February Comex gold is around $1,386.20 an ounce. Spot gold is trading up $10.20 at $1,386.25.
Wilson’s argument that Gold ETFs are mainly responsible for sustaining the gold price rally looks to be true.
According to a report from Commerzebank, the SPDR Gold Trust, the world’s largest gold fund, has reported a rise of 15.2 metric tons in its holdings, the largest net inflow since mid-October.
The financial crisis in the European Union and growing tensions between North and South Korea are adding to the investor demand for gold as a safe haven vehicle.
Commerzebank said that Gold ETFs like SPDR Gold Trust are attracting large number of investors these days thanks to the great safe haven confidence that the gold has displayed in the last one year.
For instance, investment in SPDR Gold Trust, the world’s largest exchange traded fund in gold, is dominated by retail investors.
According to a recent study by the apex gold body—the World Gold Council (WGC)—retail investors make up an estimated 70% of the SPDR Gold Trust exchange traded fund. WGC is one of the sponsors of SPDR Gold Shares. The shares trade under the ticker symbol GLD.
The Gold Trust ETF is the second-largest ETF of any kind with over $56 billion under management, with only the SPDR S&P 500 ETF – SPY – bigger at around $77 billion.
The next largest is the iShares Gold Trust at $4.4 billion under management. A share in the SPDR Gold Trust represents 1/10 of an ounce of gold, while the iShares is 1/100.
Recently iShares cut the expense ratio for the fund, which is credited with helping to boost investment in that ETF. The expense ratio for the SPDR Gold Trust is 0.40% and the iShares is 0.25%.
According to Jason Toussaint, managing director, US and investment for the World Gold Council, big investors like John Paulson or George Soros absolutely are in the SPDR GLD. "You can look at the 13F filing and see Paulson is the No. 1 holder, the largest single holder, but there’s a vast retail investment base in the GLD. Not every investor is going to show up in the 13F. Sixty to70% of the holdings are retail investors."
Toussaint said ETFs themselves have allowed small investors into the gold market. “Many of those who bought ETFs never bought gold before. It’s a testament that the GLD expanded the gold market,” he said.
SPDR Gold Shares offer investors an innovative, relatively cost efficient and secure way to access the gold market. Originally listed on the New York Stock Exchange in November of 2004, and traded on NYSE Arca since December 13, 2007, SPDR Gold Shares has been one of the fastest growing ETFs in the US. SPDR Gold Shares now trade on the Singapore Stock Exchange as well as the Tokyo Stock Exchange and the Stock Exchange of Hong Kong.
