July 23, 2012 / 4:15 PM / 8 years ago

Leading gold ETF sees biggest weekly outflow of 2012

LONDON (Reuters) - The world’s largest gold-backed exchange-traded fund, New York’s SPDR Gold Trust, saw its biggest weekly outflow of physical metal this year last week, with its holdings down 15.1 metric tons (16.6 tons) by the end of Friday, data from the fund showed.

The SPDR’s holdings have fallen nearly 25 metric tons so far in July, putting them on track for their biggest monthly outflow since December.

Demand has tailed off as gold prices have wilted this month against a backdrop of dollar strength and soft physical demand. They are currently down 2 percent in July at $1,565.

Gold ETFs, which issue securities backed by physical bullion, have proved a popular way to invest in gold since they first appeared in 2003, and now hold around 70 million ounces, or more than 2,000 metric tons, of metal.

“It’s an important segment of the gold market, and arguably it’s been a fantastic vehicle to get some of the smaller investors and some of the institutions into investing in gold,” Societe Generale analyst Robin Bhar said.

“It’s worked its magic, but on the margins, those who’ve used ETFs more as a leverage on the price may start to cash in. You could see some more outflows, though I don’t see a complete reversal.”

The SPDR’s bullion holdings, at 1,254.6 metric tons, are larger than those of Switzerland, Russia and Japan. They peaked at over 1,320 metric tons in June 2010, as investors scurried for the safety of physical gold as the financial crisis bit.

Holdings of gold exchange-traded products are easing overall, with an index of ETPs tracked by Reuters, including those operated by iShares, Zurich Cantonalbank and ETF Securities, showing an outflow this month after rising 1.6 percent in June.

Barclays Capital said in a note that ETP holdings remained resilient overall. Its research showed that a quarter of gold held in ETPs has been amassed when prices were between $900-$1,000, while net interest was flat above $1,800 an ounce.

“Unsurprisingly, gross redemptions have increased within the $1,550-1,920 an ounce range, which could represent both profit-taking of earlier established positions or liquidation of exposure under water,” it said.

“But interestingly, ($1,500) looks to be a trigger level for ETP holdings, given 2,172 metric tons of gold had been accumulated before breaching this price milestone,” it added. “Below this level, prices are likely to be exposed significantly to the downside.”

Editing by James Jukwey

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