Gold bullion stockpiled in the first US gold exchange-traded fund launched in November stands at a record high, though it is unclear if the inflow was based on new investor interest or dollar-cost averaging, with gold a cheaper buy in 2005, said a metals analyst this week.
The 47 tonnes added to streetTRACKS Gold Shares in just the few trading days so far this year is already nearly half the bullion accumulated between its November 18 launch and year-end, Andy Smith of Mitsui Global Precious Metals wrote in a weekly research note issued on Thursday.
As of January 13, holdings in streetTRACKS, which is listed on the New York Stock Exchange, amounted to 142.71 tonnes, making its net asset value a huge $1.96 billion. The fund's peak in the period immediately after its launch was about 106 tonnes.
Smith suggested the accelerated rise might be due to the ETF's initial buyers, who got in when gold was at $440-450 an ounce, showing their commitment by "averaging down" into price weakness ($420-425 this week) the cost of their entry, rather than based on new retail interest. "This could just as well be about gold gearing. For those fully strapped into gold exposure, like gold equity mutual funds, it makes sense to steer toward un-geared gold in a falling market; their relative performance looks better," Smith said.
During the same period in which bullion in streetTRACKS has gained, open interest in New York gold futures has fallen sharply, Smith added.
Open interest refers to the outstanding contracts for which an entity is obligated to the exchange because an offsetting purchase or sale, or delivery, has not been made. In addition, the American Stock Exchange-listed Gold Bugs index has "crashed" about 20 percent, he said. The HUI is an index of companies that do not sell forward, or hedge, to lock in prices for metal that has not been mined yet.
He said there had been little talk in the market of the new allocations taken by investors this year, partly because the ETF's sponsors have had to stay mum about its performance as it was deemed a "continuous offering" by US regulators.
StreetTRACKS is sponsored by World Gold Trust Services LLC, a subsidiary of the World Gold Council.
The ETF has been touted as a way for a greater number of investors, including players like pension funds and private individuals, to get access to the gold market without having to handle the physical commodity, which can be costly and complicated to store and insure.
Each paper share in streetTRACKS represents one-tenth of an ounce of gold. It traded early Friday at $42.22 per share.
Spot gold was quoted at $421.70/2.45 an ounce.