Last Updated : 25 November 2010 at 21:45 IST
Retail buyers part of gold rally: WGC
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(Kitco News) - Stories about gold buyers tend to focus on big names like John Paulson or George Soros, which suggest the little guy is sitting on the sidelines as the yellow metal rallies to all-time highs.
That’s not necessarily the case.
The retail investor makes up an estimated 60% to 70% of the SPDR Gold Trust exchange-traded fund, said Jason Toussaint, managing director, U.S. and investment for the World Gold Council. He is also chief executive officer of World Gold Trust Services, the sponsor of SPDR Gold Shares. The shares trade under the ticker symbol GLD.
“They 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,” he said.
He said between the 13F filings and an omnibus relationship with retail brokers like Charles Schwab and Wells Fargo, the estimate is a “back of the envelope figure.”
The form 13F is a quarterly report required by the U.S. Securities and Exchange Commission of equity holdings filed by institutional investment managers with at least $100 million in assets under management.
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.
The Gold Trust ETF is now 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%.
Toussaint doesn’t believe the reduction in fees has siphoned any business away. “I think people have come to realize expense ratios are just one aspect. Tight spreads, liquidity are all taken into account. The feedback we’ve heard from investors is there was no compelling reason to switch. When they did the 10-1 share split, they placed themselves toward the self-directed retail category. The size is a disadvantage for high-net worth and institutional clients,” he said.
The huge popularity of gold ETFs have some in the industry concerned about a mass exodus by investors if prices start to fall, which could then snowball and exaggerate price movements. Despite the growth in investment demand for gold via ETFs, Toussaint said in absolute figures it is still a fraction of overall demand.
As of the third quarter of 2010, physical gold-backed ETFS hold about 2,100 metric tons of gold and the amount of gold in private hands is anywhere from 28,000 to 30,000 tons, not including central bank holdings, which would push up that amount to 56,000 to 59,000 tons. Toussaint said if one considers the amount of gold in private holdings, excluding the central banks, then ETFs make up only about seven to seven and one-half percent of the market.
“I’m not saying it’s not important, but I’m saying it’s not excessive,” he said.
He contrasted that with the S&P 500 ETF, SPY. “What’s your alternative to buy it? You can do mutual funds. There are thousands of mutual funds in the US. Look at GLD. How many physically backed mutual funds are there? Zero. The ETF is a small part of the market,” he said.
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