* Precious metals inflows in equity funds at $275 million in
July and August
* Only one of top 10 gold and precious metals equity funds
shows net outflow
* Precious metals ETFs outflows at $2 billion in July and
By Clara Denina and Clara Ferreira-Marques
LONDON, Sept 13 After a once-in-a-generation
plunge in the bullion price left investors nursing their wounds,
gold equities - long unloved - showed the biggest two-month net
inflow for two years in July and August.
That might in part be thanks to a recovering gold price, but
also, analysts say, because the miners have taken hefty
writedowns, slimmed down projects and put others on hold to save
cash, after years of chasing volume at all costs.
A recovery in the price of gold has not, after all, helped
gold exchange-traded funds (ETF), which are still seeing
ETFs have been exceptionally successful since their
inception in 2003, responding to the needs of sophisticated
investors looking for tools to take full advantage of soaring
gold prices. They absorbed 2,691 tonnes of gold over the
following 10 years, as gold prices benefited from ultra-loose
monetary policies around the world.
But investors started to dump the ETFs when the 12-year-long
upward trajectory of gold prices came to an abrupt halt in
April; spot gold dropped $200 an ounce, or 13 percent, in
two days, its sharpest slide in 30 years, after the U.S. Federal
Reserve indicated its plan to taper off monetary stimulus.
Net outflows reached 660 tonnes this year, or almost $28
billion at today's gold prices.
July and August saw the tide slowing, but net outflows from
precious metals ETFs still stood at close to $2 billion,
equivalent to 2.7 percent of total assets held, according to
Lipper estimates. Excluding platinum and other non-gold ETFs,
the outflows were even bigger, at $2.3 billion or 3.7 percent of
Meanwhile, combined net flows into gold and precious metals
equity funds in those two months reached $275 million, the
biggest inflow since the summer of 2011.
"It has been a theme that people have been looking to get
exposure to gold through the actual miners themselves after the
gold price crash in April," said Hargreaves Lansdown investment
manager Adam Laird.
"A lot of investors feel that the reasons they made the
decisions to buy gold in the first place have not changed."
August showed the fifth straight month of improving net
flows since peak outflows of $1.14 billion in April, and only
one of the top 10 gold and precious metals equity funds by
assets showed a net outflow over the two-month period, according
According to estimates from Lipper, the SPDR Gold Trust, a
physical gold commodity fund and the world's largest gold-backed
fund, saw $1.9 billion of net outflows in July and August -
almost 5 percent of current assets. Yet in equities, the
BlackRock World Gold Fund has seen net inflows of $25 million in
the same period.
"Over a period of quarters, I will probably continue to look
to increase my position in physical gold and gold equities - but
not ETFs, because I can buy physical gold on my own," said
Jeffrey Saut, chief investment strategist at U.S.-based Raymond
James Financial. Saut invests in the OCMGX Gold Fund, with
exposure to Goldcorp Inc and Randgold Resources.
SHINING AT LAST
Gold miners have underperformed physical gold over the past
few years, as returns for investors dropped while producers
invested heavily to pursue growth, tackling increasingly
challenging deposits, rising costs and resource nationalism.
"It would make sense that investors are looking at gold
equities, as managements are beginning to act - this gold price
drop is actually healthy for the industry in more ways than
one," said analyst Tyler Broda at Nomura.
Faced with squeezed margins that pushed many mines into the
red, miners have shifted focus from growth to costs, where
problems were long camouflaged by rising gold prices.
Broda quoted the example of African Barrick Gold, a
unit of Barrick Gold and long time underperformer. In
the year to date, it has underperformed the gold sector
by more than a third and the broader mining
sector by almost 60 percent.
African Barrick has cut exploration, corporate and other
costs and reviewed operations at mines including Buzwagi in
Tanzania - its highest cost and lowest grade mine. At that mine,
it cut the amount of waste processed, improved scheduling to
reduce idle hours, brought in more local staff and reduced the
life of the mine to turn it cash positive again.
Since those broad cost savings were announced at the end of
July and a new boss was brought in, the shares are up almost 40
percent, outperforming the gold sector by 50 percent.
"The fact management teams are starting to act will make
gold companies more attractive than a few years ago, when you
needed gold prices to go up to get your returns - when that is
the case you might as well be in the gold ETFs, with less risk."
Small investors are also taking note.
Since August, when Britain's retail investors were allowed
to hold stocks listed on the AIM growth market in individual
savings accounts (ISAs), which have favourable tax status, four
of the 20 most bought are gold miners, including junior miners
Amara Mining and Red Rock Resources, according
to Interactive Investor data.