Gold Holdings In SPDR GLD Relatively Stable Even As Prices Drop
11 May 2012, 1:16 p.m.
By Debbie Carlson
Of Kitco News
kitco.com
(Kitco News) - Gold prices are down about $200 an ounce since making their 2012 high of $1,795.10 an ounce on Feb. 28, but the outflows from the largest gold exchange-traded fund, the SPDR Gold Trust (NYSE: GLD), have been relatively modest so far.
As of May 10, according to data on the SPDR Gold Trust website, total tonnage in the ETF was about 1,277, when the most-active June futures on the Comex division of the New York Mercantile Exchange settled at $1,595.50. Comparatively, this year’s high for total tonnage was set March 1, at 1,293 tons, two days after June gold hit the 2012 high.
Part of that “stickiness” – or the retention of investors - is the design of exchange-traded funds, said Kevin Quigg, global head of SPDR ETF strategy and consulting, State Street Global Advisors.
“ETF products are designed so that tactical and strategic investors can cohabitate in the same vehicle with no adverse effect,” Quigg said.
Tactical investors usually have short-term horizons while strategic investors generally take a “buy-and-hold” mentality.
While a roughly 16-ton drop in gold holdings this year may seem large, compare that to the sharp drop in speculative positions in the futures market. In the Commodity Futures Trading Commission’s weekly commitment of traders report, bullish positions by managed-money accounts are just off their lowest levels recorded since the agency started tabulating that particular report in September 2009.
Pinpointing how many investors are in the ETF as a short-term trade and how many are using the ETF as a portfolio diversification tool is hard to do, Quigg said.
“We don’t know how much is tactical and how much is strategic. In the secondary market you can see tactical, but they may be cross selling with someone who is a buy-and-hold person. We only have anecdotal evidence and that is the growth of the fund. The price of gold has had dramatic moves, but … there have not been tremendous outflows. From a volume perspective, there’s not been a tremendous decrease in volume,” Quigg said.
Most of the news headlines about the fund are tactical in nature as they usually come when famous investors like John Paulson or George Soros are reported to have bought or sold holdings. That information comes in a Securities and Exchange Commission filing called a 13-F. The agency requires quarterly reporting of stock holdings by institutional investment managers with at least $100 million in equity assets under management via this form.
“When you get into the realm of hedge funds … you don’t know (all of) what they’re doing. Hedge funds do gain access to the spot price via futures or physical, too. How Paulson uses GLD, I don’t know. He doesn’t call and tell me,” Quigg joked.
LATIN AMERICAN INSTITUTIONS USING GLD
Although gold investment “fever” has cooled now that gold’s price is off the all-time higher set in September at $1,923.70, interest in the ETF continues, Quigg said. One trend that’s been developing is greater use of the fund by Latin American institutions. In particular, Quigg cited increasing interest by the privatized social security funds in the Andean region of South America. “Colombia privatized their social security fund recently and we’ve just seen they’re holding the SPR GLD,” he said.
Institutions are not the only holders of the fund, just the most visible because of the SEC filings. Large individual and retail investors also buy the fund. It’s the combination of these various investor classes that made the fund the fastest-growing in history when it debuted in November 2004 and it still remains the second-largest ETF based on assets under management at roughly $65 billion behind the SPDR S&P 500 ETF (NYSE:SPX) at $95 billion.
When the fund was launched, it was considered a major innovation, finally allowing gold to trade like a stock. The fund is now nearly eight years old; are there plans for any new products that might spur demand? No, Quigg said.
At most there are some modifications to the fund that are generally operational, he said, such as when the fund went to being 100% physically allocated last year from 99.85% allocated. That small 0.15% non-allocation was used to accrue and pay expense ratios, but that’s now being handled in a different manner, he said, as part of an ongoing evaluation process of the product structure and in an effort to take advantage of any enhancements that will benefit clients.
“Customer demand is quite the opposite (from wanting new innovations). They’re very happy with the product; the draw is the 100% allocated physical bars. You get the benefit of gold ownership,” he said. |
