London paper gold shatters Australian benchmark
By: Ken Gooding
Posted: 2003/12/09 Tue 16:00 EST | © Mineweb 1997-2003
LONDON -- The World Gold Council-backed Gold Bullion Securities, [LSE:GBS], which allows investor “effectively to buy and sell gold on the London Stock Exchange for the very first time,” according to the promoters, got off to a flying start when trading started in London today (December 9).
Some 82m units representing 820,000 ounces of gold worth US$334m were traded on the London Stock Exchange and in the secondary market. As it was the first day it is logical to assume that all the trading was done by buyers, although there some opportunity for snappy profit taking as the price peaked at $41.15 a share.
Mid-way through the trading day GBS already had overtaken its namesake that was launched in Australia at the end of March and of which it is a carbon copy. So far about 250,000 ounces of gold have been traded there. This augers well for the pending American version of GBS.
The GBS price ended the day in London at $40.90, equivalent to $409/oz compared with the afternoon “fix” in London of $407.75/0z. The highest price paid on the LSE was equivalent to $411.50/oz and the lowest $408/oz.
One big buyer seems to have waited for the price to ease and the very last two trades of the day were each for more than 1.98m securities costing over $8.1m.
However, demand seemed to come from a wide variety of investors, just as the WGC had hoped. There was clear evidence that private investors were interested as many small blocks of units, such as 25 valued at just over $1,000, were traded.
“I was a very good first day,” said Simon Weeks of bullion trader ScotiaMocatta – and also chairman of the London Bullion Market Association. “But the key thing is whether this new product will demostrate there really is an underlying pent-up demand for gold from pension funds and so on that has not been satisfied before. If it continues at this level it will make an important impact on the bullion market. But if it drops to one tonne tomorrow it will not.”
GBS is two thirds owned by the World Gold Council, which in turn is backed by some of the world’s gold producers. The other one third is held by a company owned by Graham Tuckwell, managing director of the Australian ETF and joint managing director of the London listed version.
Launch of the ETF (exchange traded fund) attracted considerable media attention in London during the week-long marketing effort. However, it can’t be said the reception was rapturous as many commentators pointed out that the dollar price had already risen steeply this year.
For example, the influential This is Money investment publication pointed out that, measured in sterling, gold has risen this year by a “much more modest” 7 percent. “For investors, that 7 percent gain in the price of gold compares rather poorly with the near-15 percent rise in the FTSE 100 so far this year, including dividends, and the remarkable 18 percent jump in the FTSE All-Share index.”
This is Money also pointed out German investors would have done better buying the Dax - their equivalent of the Footsie - which had risen 21 percent, while French investors would have made 10 percent buying their national stock market index, the CAC 40. It added: “The point is that when investing in internationally traded commodities, currency prices can be more important than anything else. All that glisters is not gold - it could just be sparks from the US dollar going up in smoke.”
And the Times of London suggested: “The best way to invest in bullion is to buy Krugerrands, those one-ounce gold coins you can clink in your hand, stroke for reassurance and bury in the back garden against a rainy day. However beautiful the certificates are, they are a poor substitute for the real thing, and whatever their promises to pay, they are only paper. As governments have discovered over the centuries, printing is so much easier than finding gold to pay the bills.”
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