Chart courtesy of Stockcharts
Inflows into gold ETFs continued to grow throughout the quarter, with investors buying a record 469 tonnes of gold, dwarfing the previous quarterly record of 145 tonnes, set in the third quarter of last year. This took the total amount of gold in ETFs to 1,658 tonnes, worth US$48.6 billion, the World Gold Council said. A snippet taken from The Telegraph
Commodityonline has this snippet about silver.
According to CPM Group, investors bought 70m ounces of silver in 2007; 100m in 2008; and based on current trends, they’re on track to buy 180m ounces in 2009.
We can see that the popularity of the EFTs is enormous as investors seeking to include precious metals in their portfolios pile into the funds. We can also see from the above chart that gold producing stocks no longer display a leverage to gold prices, in fact the stocks are struggling to keep up with gold. We could argue that the stocks are telling us that gold is over priced and therefore due for a correction or the ETFs offer a much easier way to have some involvement with precious metals. So the cash that should be going into producers is being diverted to the ETFs. This raises the question of whether or not the historical leverage of stocks to gold will return or will they be considered just too risky to be considered. Who wants to research stocks and analyze each one in terms of management, political risk, the validity of the discovery, etc. This is something that we are wrestling with as our unease with the administration of the funds deters us from taking that route, other than the possible 'pop' at an options trade with GLD.
Going forward we still expect the near term to be one of sideways action for this market sector. However once this bear rally peters out the attention of the investors could quickly switch to precious metals causing a spike in gold prices. So our core position remains in place just in case we experience such a spike. Later on this year we do expect gold to move a lot higher and set new records. If this happens and the stocks put in a mediocre performance we will need to re-examine our strategy. For instance, in the UK you can place bets on golds movements and your winnings are tax free. It is odd that investments are taxed and straight forward gambling is not.
Your thoughts please!
Have a good one.
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