You are here
Economists predict that ECB will be forced to devalue the euro
StreetTracks Gold Draws $1.3 Billion,
Giving it the Best Start for an ETF
By Claudia Carpenter and Choy Leng Yeong
Bloomberg News Service
Friday, December 31, 2004
A fund created last month to invest in gold bullion has
attracted $1.29 billion from investors, making it the
most successful start for an exchange-traded fund
since the securities were created in 1993.
StreetTracks Gold Trust, the first fund traded on the
New York Stock Exchange to invest in the commodity,
enables investors to invest in gold without purchasing
the metal or futures contracts. About $227 billion is
invested in exchange-traded funds, the biggest of
which are linked to stocks in the Standard & Poor's
500 Index and the Nasdaq-100 Index.
Demand for the new gold fund, started Nov. 18, has
been spurred by fund managers barred from owning
physical commodities who want to bet that this year's
rally will continue. Gold prices reached a 16-year high
of $458.70 an ounce in October. Some investors also
buy gold as a hedge against a decline in the dollar.
"We use it as a parking place for money," said Gregory
Orrell, president of Livermore, California-based Orrell
Capital Management Inc., which has 7 percent of its
$76 million in cash and gold-backed shares. "Instead
of holding cash, we can put it there."
Since its creation, the fund has grown faster than any
other exchange-traded fund, according to Santa Rosa,
California-based TrimTabs Investment Research. The
previous record was held by the iShares Lehman 1-3
Year Treasury Bond Fund, a short-term debt fund that
raised $610 million in 30 days.
"There has been nothing like this in the history of
ETFs," said Carl Wittnebert, director of research at
Christopher Thompson, chairman of South Africa's
Gold Fields Ltd., came up with the idea for the fund
in 2002. Thompson, who is also head of the World
Gold Council, said the fund would help boost investor
demand for the metal. The council is funded by the
world's biggest gold producers including Denver-based
Newmont Mining Corp.
"It's as good a time for the gold business as it has
been in a long time, and the outlook is quite promising
from the perspective of investment demand," Thompson
said in an interview in September.
Gold prices have climbed 73 percent from a 20-year low
in 1999 as prospects for inflation boosted demand as a
hedge against declines in fixed-income assets. Hedge
funds and other large speculators have also boosted
purchases of gold futures as protection against
declines in the dollar.
Gold, which averaged $410 an ounce in 2004, is
expected to rise to an average $430 an ounce in 2005,
Australia & New Zealand Banking Group Ltd. forecast
in a Dec. 20 report. Prices have climbed for four years
in a row, gaining 5.4 percent in 2004. Gold prices gained
even as gold equity shares fell, with the Philadelphia
Gold & Silver Index of 12 mining company shares falling
9.17 percent in 2004. Shares of Newmont Mining, the
world's biggest gold producer, dropped 8.37 percent in
"We would buy the ETF when gold has strongly
underperformed gold stocks, and there's going to be a
rebound in the price of gold," said Todd Scholl, a gold
trader and analyst at San Antonio-based U.S. Global
Investors Inc., which manages $1.4 billion, including
$380 million in two precious-metals funds. "We would
use it as a tool for managing our portfolio."
The gold fund is an expensive way to buy gold, said
Stuart Flerlage, managing principal of Brownstone
Advisors LLC, a New York-based investment company
that has $100 million in futures including gold.
Investors pay a 0.4 percent fee for the fund's expenses,
according to the prospectus. "It's a lot cheaper just to
buy the actual bullion, or the futures," he said.
James Turk, founder of Channel Islands-based
Goldmoney.com, which stores about $24 million of
gold for owners in 102 countries, says the fund is
risky because the gold that backs the securities is
held by a bank.
The fund's gold is mainly held by HSBC Bank USA
and by so-called "sub-custodians" such as JPMorgan
Chase & Co. and Bank of Nova Scotia, according to
the fund's prospectus. The prospectus states that the
World Gold Council "does not undertake to monitor the
performance of any sub-custodian" and "may have no
right to visit the premises."
"Gold is your bedrock asset; you don't want to take
any risks with that," Turk said. "You're taking a risk
if you buy a fund that doesn't have all of its assets
Jewelers are the biggest users of gold, consuming 94
percent of the amount of gold mined each year.
Investor demand uses up the rest, plus sales of gold
by central banks, which are the largest owners of gold
Goldman Sachs Group recommends investors keep 3
percent of their assets in commodities, such as gold.
Citigroup, by comparison, recommends investors put
60 percent of their money in stocks, 35 percent in
bonds, and 5 percent in cash.
More demand for gold-backed shares is expected next
year, said Vaughn Francis, director of business
development at Minneapolis-based TIS Group Inc., a
money-management company with $50 million in assets.
"I would anticipate looking at it very seriously in May,"
Francis said. "Seasonally, May to August is the low for
To subscribe to GATA's dispatches, send an e-mail to:
To unsubscribe, send an e-mail to:
RECOMMENDED INTERNET SITES
FOR DAILY MONITORING OF GOLD
AND PRECIOUS METALS
NEWS AND ANALYSIS
(Korelin Business Report -- audio)
Eagle Ranch discussion site:
Ted Butler silver commentary archive:
COIN AND PRECIOUS METALS DEALERS
WHO HAVE SUPPORTED GATA
AND BEEN RECOMMENDED
BY OUR MEMBERS
Blanchard & Co. Inc.
909 Poydras St., Suite 1900
New Orleans, Louisiana 70112
178 West Service Road
Champlain, N.Y. 12919
620 Cathcart, Suite 900
Montreal, Quebec H3B 1M1
Miles Franklin Ltd.
3015 Ottawa Ave. South
St. Louis Park, Minn. 55416
1-800-822-8080 / 952-929-1129
Contacts: David Schectman,
Andy Schectman, and Bob Sichel
Resource Consultants Inc.
6139 South Rural Road
Tempe, Arizona 85283-2929
Pat Gorman, Proprietor
HOW TO HELP GATA
If you benefit from GATA's dispatches, please
consider making a financial contribution to
GATA. We welcome contributions as follows.
Gold Anti-Trust Action Committee Inc.
c/o Chris Powell, Secretary/Treasurer
7 Villa Louisa Road
Manchester, CT 06043-7541
By credit card (MasterCard, Visa, and
Discover) over the Internet:
Gold Anti-Trust Action Committee Inc.
Holding number 50-08-58-L
Donors of $750 or more will, upon request,
be sent a print of Alain Despert's colorful
painting symbolizing our cause, titled "GATA."
Donors of $200 or more will receive a copy
of "The ABCs of Gold Investing" by Michael
Kosares, proprietor of Centennial Precious
Metals in Denver, Colorado.
GATA is a civil rights and educational
organization under the U.S. Internal Revenue
Code and contributions to it are tax-deductible
in the United States.