Global investment in gold ETFs declined 42 per cent in 2010.
Gold demand in India has benefited from a combination of the country’s strong economic growth and its high rate of inflation.
Indian investors are raising their allocation to gold. Reports suggest gold medallion and bar sales were strong during 2010 in India, and in particular in the fourth quarter, relative to the same period of the previous year, up 30 per cent annually, to 250 tonnes. Consequently, the Reserve Bank of India has authorised seven more banks to import bullion. The World Gold Council (WGC) expects the impact of this measure to be visible during 2011.
The trend is clear on Gold Exchange Traded Funds (ETFs), too. Globally, the perception that investors’ confidence in paper products increases with high volatility in commodity prices hasn’t been borne out here. For, global investment in gold ETFs declined 42 per cent in 2010. WGC data says total investments in gold ETFs were 361 tonnes in 2010, as against 617 tonnes in the previous year.
This brought total holdings to a new high of 2,167.4 tonnes by December 31, 2010, worth $98 billion, the investors perceiving gold as an invaluable asset for risk management and hedging. In India, however, it was a reverse story. Gold ETFs (the majority of which are currently backed by bullion, but can also contain a percentage of derivative contracts) grew significantly during 2010, to approximately 15 tonnes by the end of December. The product was very new in 2009, the investment being insignificant in that year.
Globally buoyant
Globally, investors continued to access the gold market in multiple ways during 2010. ETFs were still a popular choice among many investors and flourish in various parts of the world. Coin and bar purchases remained high, while the over-the-counter (OTC) market was very active and has seen an increase in demand for index-based and other innovative investment vehicles. WGC, in its periodical Gold Investment Digest report, stressed that net inflows into gold, via ETFs and other investment vehicles, remained robust during 2010.
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SPDR Gold Shares listed on the NYSE and cross-listed in Mexico, Singapore, Tokyo and Hong Kong experienced net inflows of 147.1 tonnes in 2010, especially driven by strong buying during the second quarter. This brought its total assets under management to 1,280.7 tonnes of gold by year-end.
It was followed by Physical Gold Shares, the second largest gold-backed ETF, which added a collective 56.6 tonnes across its listings in the US, London and Switzerland, bringing its total holdings to 165.1 tonnes. Similarly, ZKB Gold ETF, listed in Switzerland, and iShares Gold Trust (IAU), listed on the NYSE, added 42.5 and 37.8 tonnes, respectively, during the year.
Only JSE-listed New Gold ETF experienced outflows larger than one tonne of gold during the year. This illustrates that ETFs have become a convenient and cost-effective route to access gold for investors in multiple markets, the report said.
Apart from inflation, Indian growth remains resilient, always a positive factor for gold sales here. Real GDP grew 8.9 per cent during the third quarter, as investment in infrastructure, exports, and industrial output continued to expand, and growth of around nine per cent is expected in both 2010 and 2011.