Tide Turns For Gold ETFs As Inflows Return

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February 28, 2014
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WGC’s managing director of investment discusses gold.

[This interview originally appeared on HardAssetsInvestor.com and is republished here with permisison.]

Marcus Grubb is managing director of investment for the World Gold Council, where he leads investment research and product innovation as well as marketing efforts surrounding gold’s role as an asset class. Grubb has more than 20 years’ experience in global banking, including expertise in stocks, swaps and derivatives. After the release of WGC’s quarterly Gold Demand Trends survey, HardAssetsInvestor’s Managing Editor Sumit Roy spoke with Grubb to get more details on the particulars of some of the report’s more surprising conclusions.

HardAssetsInvestor: The big story of the year was the massive outflows we saw from gold exchange-traded funds. Will we see the selling of gold ETF funds slow in 2014?

Marcus Grubb: Looking at what’s happened so far in January and February is quite encouraging, because we’re starting to see new funds flowing into the ETFs. We’re on track to have the first four-week period where we’ve had net new creations in these products internationally after 13 months of selling. There is clear evidence that sentiment on gold is improving and that you’re seeing some investors return to the ETFs.

Another point I want to make is that we think the Fed tapering is already factored into the gold price. It’s really now about interest rates, and clearly, monetary policy is looking like it will stay very accommodative in the United States and elsewhere.

HAI: How do you see things evolving on the physical side of the market? Last year was a record year for physical demand, but can a country like China see another record jump in its gold demand in 2014?

Grubb: Consumer demand will stay strong. There are a lot of binary events out there that could hit that one way or the other. For example, if Indian import controls are released, it would be good; or if China had an economic crisis, it might be bad in the short run.

Notwithstanding big events like that, we still think you’ll see strong consumer demand this year that’s similar to last year, simply because you’ve still got continued growth and prosperity in the two largest markets, India and China. And you’ll definitely see evidence of a pickup in coin demand and jewelry demand in Western countries in Europe and the U.S. as well.

Going back to China, we’re in the camp that says this is a secular uptrend in Chinese gold demand; it isn’t a cycle. Ten years after deregulating, per capita gold holdings are less than half of Indian holdings.

Having said that, what is the likelihood China will exceed or equal the record 2013 figure? That’s going to be tough, because we had a third growth in the market—over 30 percent demand growth. And, of course, part of that was related to the price drop in gold last year.

 

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