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Contrary to recent forecasts predicting the end of the gold bull market, Graham Tuckwell, Founder and Chairman of ETF Securities, one of the world’s leading providers of exchange-traded commodities (ETCs), believes untapped demand from China and India, and retail investors, will lead to a second decade of growth for the gold market.
Ten years on since Tuckwell launched the world’s first physical gold exchange-traded product (ETP) in Australia, similar products are now listed on 31 exchanges throughout the world and have seen assets under management reach $147 billion. The world’s largest gold ETP, the SPDR Gold Shares (GLD), from SSgA, has more than $63 billion in assets under management.
In 2012 alone, investors allocated a total of $2.5 billion in net new assets into physically-backed gold products sponsored by ETF Securities, such as the ETFS Physical Gold (PHAU) and Gold Bullion Securities (GBS). Nearly 40% of all European physical gold ETP flows were traded through ETF Securities’ products in Q4 2012.
Commenting on the ten year anniversary of the launch of the first physical gold ETP, Tuckwell said: “Ten years ago, you heard about gold, people talked and got emotional about it, but you couldn’t buy it readily. It is widely acknowledged that the launch of gold ETPs has had a very significant impact on the gold market and is now a key part of it. We have witnessed a decade of growth, and despite some predicting the end of the gold bull market, I think the next decade has a lot more to go.
“Untapped demand from China and other parts of Asia will be one of the biggest factors to drive product development and broaden access. While the larger investors in these markets can already buy gold ETPs on other exchanges, smaller investors want to buy on their local exchange. Currently, these products are not widely available in these regions, and the demand is growing.
“The second change that will occur is greater investment by retail investors in the Western world. The European retail market lags some way behind the US, where there is already a strong level of demand for gold ETPs from retail investors. One of the biggest barriers in Europe is access, but developments to distribution models and further education on the investment vehicle mean that we will start to see greater demand for these products.”
The outlook for gold
The resurgence of risk appetite amongst investors has led to many switching their money out of more defensive assets, such as gold, and into equities. However, Nicholas Brooks, Head of Investment Strategy at ETF Securities, doesn’t believe the recent sell-off reflects a U-turn in investor attitudes and believes the overall outlook for gold remains good.
He said: “Most of the current selling is by investors with shorter-term tactical views. However, strategic investors in gold are continuing to hold tight. They see gold as a longer-term hedge against currency debasement, diversification and insurance against worst case economic scenarios, and some are starting to think about increasing allocations following the recent price declines. With net speculative longs in the futures market now back at end-2008 levels and the continued high risk of negative sovereign risk events in Europe, I wouldn’t be surprised to see a turn in gold ETP inflows in the coming weeks or months.”
Within Europe, ETF Securities is not alone in offering physically-backed gold ETPs. Similar products are offered by various European sponsors, including Source, iShares, Deutsche Asset & Wealth Management, UBS, RBS and Swiss & Global, among others.