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Gold ETFs Shrink as New Platinum, Palladium Funds Draw Aggressive Buying

Commodities / Gold and Silver 2010 Jan 18, 2010 - 08:07 AM GMT

By: Adrian_Ash


Best Financial Markets Analysis ArticleTHE GOLD PRICE ticked higher for US and Euro investors early Monday but held inside a tight range while Asian stock markets closed the day 1% lower and European shares rose.

Little economic news was due for release as US markets stayed closed for Martin Luther King Day.

Government bonds were flat across the board. Commodity prices dropped 1% on average, as crude oil held below $79 per barrel and foodstuffs fell.

"Gold and silver were driven up by platinum and palladium," says one Tokyo dealer of the overnight action, noting "aggressive buying" of platinum-group metals after last week's launch of exchange-traded PGM products for US investors.

Attracting $100 million on their first day, ETF Securities' new "physically backed" platinum and palladium funds – which waited 8 months for regulatory approval – are "almost like a warehouse receipt" according to founder and chairman Graham Tuckwell in an interview with

"I am hearing of US and European dealers buying these metals but I haven't seen Chinese buyers," said Standard Bank's Yuichi Ikemizu in Tokyo, speaking to Reuters.

Compared to current demand for gold ETFs, "The outlook for platinum and palladium looks quite bullish," he added.

New York's SPDR Gold Trust, the world's largest gold ETF, has reduced the volume of gold backing its shares by 1.9% so far in 2010 – some 20 tonnes.

"Private investors have remained on the side-lines in the first [few] days of 2010," says Wolfgang Wrzesniok-Rossbach in his Precious Metals Weekly for German refining group Heraeus.

"Although there is demand from this sector, it is at a relatively low level. Additionally, in Europe as well as the Far East, increased supplies from scrap-gold came to the market, which is probably why gold today is 2% below its year's high."

Speculative traders playing gold futures and options on New York's Comex exchange last week increased their "net long" to the equivalent of 945 tonnes, the largest level since the start of December and 2.6% greater from the week before.

The total "open interest" in Comex gold contracts grew by 2.5%, as did the gold price over the same period.

"Considerable amounts of cash have been funneled into speculative gold trading and not created any physical value for the economy," said the State Bank of Vietnam last week.

"This [money] should have been invested in more productive activities."

Some $108 million in commercial Vietnamese bank lending has gone into gold derivatives, the Vietnam Investment Review estimates.

The government in Hanoi has ordered all leveraged gold markets be shut by March 31st. The typical position across Vietnam's twenty gold futures markets is leveraged 13 times over, local press report.

Today the Banking Regulatory Commission in China – now the world's largest private consumer of physical gold – warned the country's commercial banks to improve their risk controls, targeting new lending to the "real economy" after credit supplies swelled by 32% in 2009.

"Banks should pay high attention to changes in the property market and strictly implement relevant credit policies to enhance supervision...of property loans," the CBRC says in an official statement.

Back in Europe, the government of Iceland may collapse according to ratings-agency Standard & Poor's, after the president vetoed repayment of $5.5 billion owed to Dutch and UK bank depositors earlier this month.

"The risk is there that the [International Monetary Fund's $4.6bn loan] will fall apart and with that, the downside risks would increase very considerably," said S&P's managing director for Europe, the Middle East and Africa, to Bloomberg by phone.

Across Western Europe, withdrawing the massive central-bank and fiscal stimuli of 2008-2009 may prove "more difficult than the crisis itself," according to a report from Moody's Investors Service, warning that much of the Eurozone will not return to pre-crisis growth rates.

"Greece faces a problem which is endemic through [the Eurozone]," says Standard Bank strategist Steven Barrow today. "Namely that without enough fiscal, monetary and exchange rate levers to pull in times of crisis, the gap between the stronger nations and the weaker ones just keeps on increasing.

"The consequence of this that the economic convergence, that was required for countries to be a part of [the monetary union], gets destroyed."

Gold jewelry exports from Italy – the world's third largest fabricator after China and India – fell 20% by value in 2009, leading industry figures said this weekend at the country's top jewelry fair, the VicenzaOro First which opened and Saturday and runs until Thursday.

"The 'mini recovery' that the markets are revealing is uncertain and its real consistency and duration are today still unknown," said Roberto Ditri, the Fair's new president, in his opening speech.

"The only certainty is the tangible recovery in some market areas: China, India and Brazil have got off again to a decisive start. But it is not automatic that they will trigger an equally strong recovery in other economies.

"In this context, the jewelry sector must react and it must be supported to do so."

Consolidation amongst Italy's jewelry producers continues apace, says, with major player Rosato buying another privately-held fabricator, Calgaro, last week.

By Adrian Ash

Gold price chart, no delay | Free Report: 5 Myths of the Gold Market
Formerly City correspondent for The Daily Reckoning in London and a regular contributor to MoneyWeek magazine, Adrian Ash is the editor of Gold News and head of research at , giving you direct access to investment gold, vaulted in Zurich , on $3 spreads and 0.8% dealing fees.

(c) BullionVault 2010

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

(c) BullionVault 2010

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

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