Where did all that ETF gold go?

Exchange-traded funds may not want gold, but Asian buyers certainly do.

As the West shed gold holdings, emerging markets, particularly India and China, bought it up. As we wrote recently, China and India have been importing record amounts of physical gold, stimulated in large part it seems by the dramatic fall in price this year.

In the same piece, we advised the fall in gold price was matched by an unprecedented outflow of metal from the gold ETFs, over 176 tons in the first quarter followed by over 402 tons in the second quarter. Outflows have slowed in July, but still posted a negative number.

This graph shows how marked the trend has been after years of positive demand soaking up metal:

 

Source: World Gold Council

Interestingly, the two trends are closely linked.

As an FT article explains, physical gold bought by Asian buyers is usually in the form of small bars and coins, whereas the physical gold held by ETFs is more normally held in the form of traditional larger 400-ounce bars.

No surprise, then, that the UK’s gold exports surged nearly tenfold this year, according to Eurostat data quoted by the FT, as some €29 billion ($39 billion) worth of gold was exported to Switzerland for re-melting and casting into smaller products. Exports surged to 798 metric tons in the first six months of the year, up from just 83 tons in the first half of 2012, according to the FT.

Apparently, London is estimated to hold some 10,000 metric tons of gold in its bank vaults and in the Bank of England, making it the largest repository of the metal in Europe, whereas Switzerland has much of the refining capacity at firms like Metalor, Pamp, Valcambi and Argor-Heraeus.

However, another interesting relationship between ETF flows and physical gold premiums is emerging.

 

About the Author

Stuart Burns, co-founder and editor of MetalMiner, has over 30 years of international metal supply experience, including nearly 20 years running his own UK-based metals distribution business with sales worldwide and a branch in Asia. Stuart is a frequent writer and speaker on metals market topics with numerous white papers, radio interviews and articles to his credit. Stuart was previously MD of Amari Overseas Ltd., the international trading arm of Amari Metals, the UK’s largest metals distribution group, and prior to that a Senior Trader at Stemcor London, running metals trading and arbitrage. Stuart graduated with First Class Honors in Applied Science from Kingston University and is also a graduate of Ashridge Management College’s Strategic Business Management Program.

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