More Gold Buyers

By Michael Pennington © Copyright 2010 Pennco Coins

This week, the Central Gold Trust of Canada (GTU) announced it is going to buy $800 million worth of gold. Using recent prices, that’s 648,000 troy ounces or 20.15 metric tonnes.

Last month, Sprott Physical Gold Trust (PHYS) raised $279 million in a secondary offering, and said it would spend that money on acquiring physical gold bullion. At the time, that was good for 230,000 troy ounces of gold.

Also last month, the SPDR Gold Trust (GLD) filed papers allowing it to purchase an additional $28 billion in gold over time. To be sure, the GLD won’t be purchasing all that gold at once, and there’s no guarantee it will buy all of it. But at today’s prices, that works out to 22.7 million ounces.

Last year, all the gold produced by the mines in the world totaled just 2,527 metric tonnes, according to GFMS data. So, just the extra purchases by GTU and PHYS will eat up more than 1% of the world’s entire gold production, if it stays the same. And many experts expect gold mine production to go down this year. Potential purchases by GLD would account for another 706 metric tonnes — or more than one-fourth of all the gold that was mined last year.
And these aren’t the only ETFs in the world that hold physical gold. Here’s a chart from the always excellent …

Over the last three months alone, ETFs have added almost 250 metric tonnes to their holdings, for an annualized rate of 1000 tonnes. To put that in perspective, total demand was 3,386 metric tonnes last year.
And this means ETF investment demand is becoming a larger and larger part of total demand …

Considering all the other demand for gold — from other investment funds, physical buyers, jewelry and more — I’d say there’s more than enough evidence we’re shifting into the next phase of gold’s bull market.

The new Swiss Gold ETF SGOL has also been adding to its bullion holdings. Its total assets under management passed the $500 million mark just last week. And it’s the fastest-growing physical exchange-traded fund (percentage-wise, in terms of ounces held) this year.
SGOL may be becoming more popular because it sets itself apart from two other well-know U.S.-listed gold ETFs, the GLD and the iShares COMEX Gold Trust (IAU), by having its gold housed in Switzerland. Both the GLD and IAU keep their gold in London.

Mr. Jheon said he believes the bullish action in gold is tied to what’s happening with the European debt crisis. He said, “The more issues there are with Greece and neighboring countries and their sovereign debt, the more flows we have coming in to our funds.”

There’s also a broader adoption of gold as an investment class underway, Mr. Jheon says, as people look to move out of paper assets they view as more risky and into a safe haven.
Along with a surge in investment demand, Mr. Jheon offers two other forces driving gold prices: Central banks have switched from being net sellers of gold to net buyers. And then there’s the Chinese …”China has been one of the largest buyers of gold as of late,” Mr. Jheon says.  “Their central bank is replacing foreign currencies with gold holdings.”

But China is not alone in Asia when it comes to buying Gold. Let’s take Vietnam for example. The Vietnamese consume more gold per dollar of income on average than anyone else on earth. Last year, they consumed more than twice as much gold as the famously gold-loving Indians, 10 times as much as Chinese and 44 times as much as Americans, according to World Gold Council data.

Gold is on the move and soon shortages will begin to take center stage. Don’t be left behind!


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