Stampede for investment into Gold ETFs

February 13, 2009

By Renisha Chainani
The recent rise in risk aversion has triggered strong inflows into the Gold Exchange Traded Funds (ETFs) and a simultaneous increase in demand for gold coins and small investment bars.

On January 28, 2008, gold holdings of the World Gold Council's gold Exchange Traded Funds SDPR stood at 832 tonnes. By February 12, they had grown to 935 tonnes a growth of almost 100 tonnes in two weeks.

SDPR fund held just 8.09 tons when it began November 18, 2004. There are many other gold bullion-holding funds in the developed world from London to Switzerland that are not included in list. If they are included, the total Gold ETFs would be approaching 1300+ tonnes. Clearly we are seeing a stampede of institutional fund management into gold at present.

Check below the Central Bank Gold Holding in 2008:

Gold Holdings        (In tonnes)
United States           8133.5
Germany                  3417.4
IMF                        3217.3
France                     2568.3
Italy                         2451.8
Switzerland             1113.2
Japan                      765.2
Netherlands              621.4
China                       600.0

The Central Banks of the world are the largest holders of gold in themselves, despite that unquantifiable fact that around 20,000 tonnes of gold are held privately across the Indian sub-continent.

So as to give us a sense of proportion on the top cats in the neighborhood, here are the current gold holdings of the top 9 central banks in the world.

If we are to take the entire privately held gold Exchange Traded Fund shares, they would represent more gold than held by the Swiss National Bank, Switzerland’s central bank. Japan was overtaken a long time ago.

COMEX Gold has resistance at $950/ oz and $980/ oz. If prices sustains above these levels,we could see new record high in 2009. In India, We could see levels of Rs 15000 / 10 gm with in 10 days.

Renisha Chainani is Research Analyst, Anagram Capital Ltd, India

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