Tudor fund touts gold ETFs, but may not partake
Tue November 4, 2003 04:14 PM ET
NEW YORK, Nov 4 (Reuters) - New securities backed by physical gold have great potential to increase participation and liquidity in the gold market, but large "macro" hedge funds have little need to invest in them, an analyst at Tudor Investment Corp. said Tuesday.
Gold-linked exchange traded funds (ETFs) and other such investments are catching on in Australia six months after their debut and the market is waiting for regulators to approve similar securities to trade in London and New York.
"There has been a lot of controversy about whether or not these ETFs mean anything or matter in any way. Let me say that, at Tudor, we think they mean a lot," said commodities strategist Steve Mathews.
But Mathews said in response to a question that institutions like Tudor -- managers of large pools of high-risk capital -- have very little interest in trading the ETFs themselves because they can easily speculate in futures and physical markets.
"The point is ... the ETFs allow everyone, hopefully everyone with a Schwab account or an ETrade account, to buy and hold and trade gold. We think that is a very big development," Mathews said a precious metals conference sponsored by Gold Fields Mineral Services and the Silver Institute.
Mathews said the securities listed on the Australian Stock Exchange have attracted 2.3 million shares worth of investments since they launched earlier this year. With each share equaling 1/10 ounce of gold, that represents 230,000 ounces of bullion bought to guarantee the paper.
At the same time the Australian dollar gold price has fallen to A$546 an ounce from A$590.
"That is a serious hit. But this ETF continues to attract new customers," Mathews said.
He said the much larger size of the U.S. economy and its pool of investment money suggests that a gold ETF in New York could mean demand for at least 16 times as much bullion as backs the Australian gold ETFs.
"You are looking at something like 3.4 million ounces of gold taken off the market in 6 months. That's physical gold not available for lending," he said.
Less gold lending means less gold selling in forward markets to pressure gold prices.
As a commodity, gold has OK volatility to make it interesting to trade, and good liquidity, according to Tudor.
But analyzing gold fundamentals like other commodities is "inappropriate" because of what Mathews described as price insensitivity to any incremental supply changes in an already extremely oversupplied gold market.
"Is it possible that gold is a foreign exchange rather than a commodity? Is it possible that there is no reason to lump gold together with these other commodities? I think it is," he said.
"Given that you have a way of determining direction to trade other than fundamental analysis, gold is a perfectly accommodative market to trade," Mathews added. |
