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To: ~digs who wrote (15801)	11/24/2003 11:29:13 AM
From: ~digs	Respond to of 48461

High hopes for US gold ETF mips1.net By: Tim Wood ; Posted on 2003/11/04 NEW YORK -- Commodities strategist for Tudor Investment Corporation, Steve Matthews, says that the launch of the World Gold Council’s Exchange Traded Fund in the US could soak up more than three million ounces of the yellow metal based on the performance of Australia’s Gold Bullion fund. Speaking at the Fall Precious Metal Conference at the New York Mercantile Exchange, Matthews showed how the Australian ETF has sustained inflows despite declines in bullion prices when measured in the local currency. It’s a very sticky product – at least whilst it is supported by macro factors like dollar weakness, geopolitical risks and American deficits. Gold Bullion has hoarded over 230,000 ounces of gold since its inception earlier this year. The fund is a template for a global family of funds that will be introduced under the auspices of industry advocacy group, the World Gold Council. The funds were supposed to launch in October at least, but remain under regulatory starters’ orders following the refiling of the American registration statement. The refiling followed the settlement of an intellectual property dispute with Bank of New York. The funds are now expected to debut in the New Year. The US iteration of the fund is the most keenly awaited because it is expected to satisfy pent up demand for non-physical bullion investments. Experts say the demand is less from retail investors wanting a cheaper and more convenient alternative to coins and bars, than from institutional investors looking for portfolio diversification and exposure to assets inversely correlated to equities and the dollar. Matthews says that a reasonable expectation is for the US fund to be a multiple of its Australian counterpart. At sixteen times the size of the Australian economy, Matthews does a straightforward conversion to speculate that the US gold ETF could absorb around 3.5 million ounces within six months of initiation. Were that to happen, the fund would be worth $1.4 billion at current gold prices, or about 1.3% of the total value of all the world’s publicly traded gold and silver equities. If that rate of uptake were maintained then, on an annualised basis, the market would benefit by losing the equivalent of a whole year’s new mine supply from a Newmont or AngloGold-Ashanti. It’s not enough to generate a supply shock, however, Matthews says the lack of precedent for a gold ETF means the final comparison with Australia might be “non-linear” – or multiply higher than the sixteen times GDP conversion. He is encouraged to be more optimistic because anecdotal research suggests that little of the money attracted by the Australian fund has come from the United States. That could be critical because Tim Gardiner, president and chief operating officer of Mitsui warned conference delegates that producer dehedging, which has led the gold rally so far, is petering out. Consequently, further support for the gold price needs an alternative to dehedging. The global network of bullion ETFs would fit the bill though they may be challenged to match past dehedging ounce-for-ounce. But at least some equilibrium is in the offing should dehedging decelerate markedly. One positive factor noted by Matthews is an increasing tendency among funds to view gold as a foreign exchange instrument rather than a commodity. Whilst the macro factors count against fiat currencies and mainstream securities, bullion ETFs could be especially important to professional investors. This view was backed up by Ian McDonald, vice president and manager of precious metals at Commerz Bank, who says that gold has resumed its currency role after a two decade hiatus. The question now is who will try to develop the first silver and pgm ETFs.