Commodity Online
MUMBAI: Who is afraid of IMF plans to sell gold and the Central Banks’ move to get rid of gold before September, when the CBGA expires?

It seems nobody is bothered about all this as the investors are still flocking to the gold ETFs across the globe. The rush is so much that the investors seem to be trusting only the yellow metal to put their money on.

According to World Gold Council, inflows into gold ETFs grew throughout the first quarter of 2009. Investors bought a record 469 tonnes of gold in this quarter, breaking the previous quarterly record of 145 tonnes, set in the third quarter of last year. The total amount of gold in ETFs now is 1,658 tonnes, at $48.6 billion.

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All thanks to the recession looming over the world. According to WGC, the safe have status of gold, growing uncertainty over where consumer prices are headed and a renewed vigour in the search for effective portfolio diversifiers all supported gold investment demand throughout the first quarter of 2009.


One reason the financial crisis has been so devastating for investors is that many alternative assets did not deliver on the promise that they would provide portfolio diversification. “The same cannot be said for gold. Gold has been one of the few assets that has genuinely provided investors with diversification throughout the financial crisis,” WGC said.

For the first quarter of 2009, the gold price ended at $916.50/oz, on the London PM fix, representing a moderate increase of 4%, contrasted against a 12% decline in US stock prices during the period.

Reports from coin and bar dealers also point to another very strong quarter in retail demand for coins and bars in Q1 09, after a 396% year-on-year increase in Q4 08. Dealers have continued to report shortages in the availability of official coins and small bars.

During the quarter average gold price volatility softened to 29.2%, on a 22-day rolling basis, in Q1 09, from 44.8% in the final quarter of last year.

Continued uncertainty over the health of the world’s financial sector and broader economy, alongside aggressive monetary and fiscal policy moves from the world’s leading central banks and major governments kept market volatility high across the board. For example, the volatility of the S&P500, also measured on a 22-day rolling basis, ended Q1 09 at 49%.

Regarding the broader economic backdrop, commentators expressed two distinct views with respect to where consumer prices are headed. One sees inflation coming, as a consequence of the staggering increase in public spending and the quantitative easing measures being put in place by central banks around the globe.

“Gold is not just effective during a financial crisis. The unique and diverse drivers of gold demand and supply mean that changes in the gold price do not correlate with changes in the prices of other financial assets, regardless of the health of the financial sector or broader economy,” WGC said. “Gold is an effective portfolio diversifier regardless of the stage of the economic cycle.”

Gold ETFs are listed on stock exchanges and offer investors exposure in bullion without taking physical delivery. Sponsors of the funds buy a matching amount of physical gold and keep it in bank vaults.

WGC said it will release comprehensive first quarter supply and demand statistics in mid-May in its Gold Demand Trends report.

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