Gold ETFs: Gold “outlook remains favourable”, says JP Morgan, as bargain hunters step in

Jun 12th, 2012 | By | Category: Commodities

Last week saw the largest jump in gold speculative net long futures positions in over four years as bargain hunters stepped in, according to a report from commodities ETP provider, ETF Securities.

Gold ETFs | Gold "outlook remains favourable", says JP Morgan, as bargain hunters step in

"For long-term investors, the depth and diversification of gold demand means the outlook remains favourable," says JP Morgan's Gregson.

Although Fed Chairman Bernanke’s testimony to the Congressional Joint Economic Committee last week was non-committal on the potential for QE3, bargain hunters appeared to take price weakness as an opportunity to accumulate net long gold futures positions at the fastest pace since December 2008, surging 28%, notes the report.

The report also details how China’s gold imports surged in April, with data from the Hong Kong Census and Statistics Department showing that Chinese gold imports from Hong Kong hit a record monthly level of over 103 metric tonnes in April.

“The 65% month-on-month surge in gold imports comes at a fortuitous time for the physical gold market given the recent weakness of Indian demand as a weak Rupee has continued to hold back demand”, say ETF Securities’ Martin Arnold, Senior Analyst, and Nicholas Brooks, Head of Research and Investment.


ETFS Physical Gold ETC (PHAU)

– Simple, cost-efficient and secure way to access
the gold market

– 100% backed by physical allocated gold conforming
to the London Bullion Market Association’s (LBMA)
rules for Good Delivery

– Product has over $7bn in assets providing high
liquidity and tight spreads, thus ensuring low Total
Cost of Ownership

– UCITS compliant, London listed, UK Reporting
Status, eligible for ISAs and SIPPs, TER 0.39%

Meanwhile, Neil Gregson, Managing Director and Portfolio Manager at JP Morgan, reiterates the long-term case for gold in a report on the natural resources sector.

Gregson argues that, while the gold price has been volatile recently, with every positive US economic data release being accompanied by a sell-off in gold, the structural supports for gold remain in place.

“One of the most interesting developments in gold market dynamics over the last five years has been the huge increase in demand for gold bars and coins by private investors, driven by negative real deposit rates and the desire for real assets to counter concerns over inflation,” states Gregson.

Gregson, an expert on the natural resources sector, also points to central bank buying as a critical support for the gold price: “Central banks were net buyers of gold for the first time since 1987 in 2011, as emerging markets sought to diversify their foreign exchange holdings against the backdrop of escalating concern over developed world debt. International Monetary Fund data shows that this buying spree continued in the first quarter of 2012.”

Summing up, Gregson says: “The recent sharp moves in the gold price have been driven by speculative short-term investors. For long-term investors, the depth and diversification of gold demand means the outlook remains favourable.”

For investors wishing to gain exposure to gold, the following physically-backed Exchange Traded Commodities (ETCs) are, aside from buying bullion itself, the most direct route into the metal for UK-based investors:

ETFS Physical Gold ETC (PHAU)
The ETFS Physical Gold ETC is designed to offer investors a simple, cost-efficient and secure way to access the gold market by providing a return equivalent to movements in the gold spot price less the relevant management fees. PHAU is backed by physical allocated gold held by the custodian (HSBC). All physical gold metal held with HSBC conforms to the London Bullion Market Association’s (LBMA) rules for Good Delivery. London listed. TER 0.39%.

iShares Physical Gold ETC (SGLN)
The iShares Physical Gold ETC is a physically-backed Exchange Traded Commodity (ETC) offering investors accessible, liquid and transparent exposure to the day-to-day movement of the price of gold, as per the London PM fix price. The security is backed by physical gold bullion held as allocated gold bars with the custodian, JPMorgan. London listed. TER 0.25%.

db Physical Gold ETC (XGLD)
The db Physical Gold ETC is backed by a direct investment in physical gold and provide investors with exposure to the gold spot price via London Good Delivery Gold Bars. The issuer (Deutsche Bank) has direct and sole ownership of the gold which is stored in secure vaults in London (JP Morgan and Deutsche Bank). Each physical ETC security entitles the holder to a specified quantity of gold of the segregated pool owned by the issuer. London listed. TER 0.29%.

Source Physical Gold P-ETC (SGLD)
The Source Physical Gold P-ETC provides physically-backed exposure to the performance of the London Gold Market PM Fixing Price in USD. Each Gold P-ETC is a certificate which is secured by gold bullion held in JP Morgan Chase Bank’s London vaults. London listed. TER 0.29%.

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