►ETF Securities Plans Silver, Gold Funds to Tap Rising Demand
April 25 (Bloomberg) -- ETF Securities Ltd., the first company to sell bullion-backed securities, wants to sell shares tied to silver in London and gold in Asia to tap rising demand from investors seeking alternatives to stocks and bonds.
ETF, whose gold-based securities have grown to $9.1 billion since starting in 2003, along with Barclays Plc and Banque AIG are marketing commodity-linked funds to capitalize on gold's jump to a 25-year high and silver's advance above $14 an ounce for the first time since 1983. Investment in commodities may grow 38 percent to $110 billion this year, Barclays estimates.
``When we launched a few years ago, we saw that there would be a massive reallocation of balance sheets of central banks and investors and gold prices would be in a long-term bull market,'' ETF Chairman Graham Tuckwell said in a phone interview from London on April 18. ``There's been a huge amount of interest in the silver'' fund.
ETF already has gold-backed securities listed in New York, London, Australia and Johannesburg and holds 451 tons of gold, more than the U.K. government, Tuckwell said. Each security is backed by a 10th of an ounce of gold.
Barclays is also planning a fund linked to the price of silver that will be listed in the U.S.
Financial Protection
Tuckwell is among fund managers, bankers and analysts speaking at the Commodity Investment World conference in Tokyo on April 25 and 26. Other speakers include Jim Rogers, who wrote the book ``Hot Commodities,'' and Robert Greer, product manager for the Pimco Commodity RealReturn Strategy Fund.
Prices of commodities from oil to gold to copper have surged, as China consumes more raw materials to fuel power stations and make more cars and build homes. The Chinese economy, the fourth-largest in the world, grew 10.2 percent in the first quarter, President Hu Jintao said April 16.
Crude oil prices in New York touched a record $75.35 a barrel on April 21 and are up 34 percent from a year ago, on concern of supply disruptions in Iran because of a dispute over nuclear research.
The rising oil price has sparked inflation concerns and led investors to buy gold as a hedge, driving the price of bullion for immediate delivery to $645.85 an ounce on April 20, the highest for a quarter of a century.
$1,000 Gold?
The precious metal for immediate delivery surged to $850 an ounce in 1980, when consumer prices jumped more than 12 percent. Inflation erodes the value of assets such as bonds and equities.
``People's perception and behavior will change and they will look for financial protection for their assets,'' Juerg Kiener, chief investment officer at Swiss Asia Capital Ltd., said in Singapore. ``Oil has gone to $70 in three to four years. It won't be a big deal for gold to go above $1,000 an ounce in a few years.''
Demand for agricultural products such as sugar and corn has also surged. Copper and zinc prices have risen to records this year as supplies are disrupted by strikes and demand grows.
By comparison, the benchmark Standard & Poor's 500 Index of stocks has risen 5 percent this year.
``There are strong prospects for copper, zinc and nickel, and a risk of oil exceeding $70 a barrel on a long-term basis,'' Kevin Norrish, an analyst at Barclays Capital, said April 19. ``The drivers of growth are coming from industrializing countries such as China and India, a move that cannot be done without the consumption of energy and materials.''
Corn Prices
China's falling corn exports will lift corn futures above $2.90 a bushel in three months, Citigroup analyst Terry Reilly said last month. Corn traded on the Chicago Board of Trade has gained 13 percent this year to $2.4375 a bushel.
``Corn is coming into its own, and China is a major factor,'' said Simon Bentley, head of starch and sweetener research at London-based LMC International Ltd., adding he has received more calls from fund managers in recent months as they seek diversification. ``Higher crude oil prices are drawing attention to corn for use as ethanol.''
To be sure, returns in commodity-linked indexes run by Goldman Sachs Group Inc. and Deutsche Bank AG this year haven't done as well as direct investments in gold, copper and sugar because the indexes are weighted toward energy markets such as natural gas.
The return from the Goldman Sachs Commodity Total Return index this year is 7.3 percent. Gold is up 20 percent, copper 54 percent in London and sugar 18 percent in New York. Natural gas has fallen 29 percent in New York this year.
``It's really about investing in a diversified portfolio of commodities futures over the long term because of the correlation benefits,'' Jeffery Robbins, managing director of Banque AIG, Japan, which markets the Dow Jones-AIG Commodity Index, said from Tokyo on April 20.
Investment in public funds linked to the Dow Jones-AIG Commodity Index in Japan has jumped by nearly 60 billion yen ($510 million) over the past six months, he said.
To contact the reporters on this story:
Tan Hwee Ann in Melbourne at hatan@bloomberg.net;
Claire Leow in Jakarta at cleow@bloomberg.net;
Last Updated: April 24, 2006 20:10 EDT |
