Gold holdings in ETPs plunge

SEOUL: Gold held through exchange-traded products ( ETP) tumbled by the most in more than two years amid speculation that improving prospects for the global economic recovery are undermining demand and hurting prices.

Assets in gold-backed ETPs fell 31 tonne on Tuesday to 2,043.09 tonne, the lowest level since August 10, according to data compiled by Bloomberg from 10 providers. That’s the biggest drop in percentage terms since October 2008, the data show. Holdings have shrunk 3.4% from the record 2,114.6 tonne on December 20.

Global economic growth may be 4.4% this year, the International Monetary Fund said Tuesday, boosting its outlook from 4.2%. More than half the respondents in a quarterly poll of 1,000 Bloomberg subscribers said that the gold market is a bubble, according to the survey taken January 20-24. Spot gold has lost 6.5% since setting a record last month.

“Strong economic data has improved confidence about the global outlook and reduced the need to hold gold and silver as a safe haven against credit risk, event risk and currency weakness,” Standard Chartered said in a weekly report on January 25. “We expect further weakness in both markets.”

Spot gold traded at $1,337.82 an ounce at 5:02 pm in Singapore after tumbling to a three-month low on Tuesday. The price, which gained for a 10th straight year in 2010 and reached an all-time high of $1,431.25 an ounce on December 7, is set to drop in January for the first month since July.

ETPs allow investors to hold assets such as precious or base metals without taking physical delivery and they trade like stocks on exchanges. Holdings in the 10 gold ETPs tracked by Bloomberg gained 17% in 2010 after rising 51% in 2009 as investors sought to protect their wealth.