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More comment on the debut of the World Gold Council''s bullion fund
Gold Futures Fall But Hold Above $440;
New Exchange-Traded Fund Opens on NYSE
By Myra P. Saefong
CBSMarketWatch.com
Thursday, November 18, 2004
a href=http://www.marketwatch.com/news/yhoo/story.asp?http://www.marketwatch.co...
source=blq/yhooamp;siteid=yhooamp;dist=yhooamp;guid=%7B8E325390%2DA5C1%2D4FF9%
2D8DA7%2D4134E845B0A8%7D
SAN FRANCISCO -- Gold futures closed lower Thursday
after a climb of nearly $8 in the past two sessions, but
prices remained above $440 an ounce following the
launch of the first gold-bullion exchanged-traded fund in
New York.
quot;The metals as a whole are overbought and deserving
of some consolidation,quot; said Peter Grandich, editor of
the Grandich Letter, an investment advisory publication.
quot;The G-20 meeting is a good excuse for currency
traders to take a breather and for the U.S. dollar to
bounce a little from a very oversold condition,quot; he
said. The Group of 20 financial policy makers will
gather Friday and Saturday. Foreign exchange rates
are expected to be one of the topics discussed at
the meetings in Berlin.
Overall, quot;the major trend for gold remains up and
the U.S. dollar down,quot; said Grandich. On Thursday
the dollar traded slightly higher against the yen and
euro.
Against this backdrop, December gold closed at
$442.90 an ounce on the New York Mercantile
Exchange, down $2.20. It closed at $445.10 on
Wednesday -- at the highest level since July 1988.
The first gold bullion-backed exchange-traded fund
began trading on New York Stock Exchange on
Thursday. The new ETF -- StreetTracks Gold Shares
-- trades under the symbol GLD with the World
Gold Council as the sponsor.
Shares of the gold ETF closed down by a nickel at
$44.38.
quot;Gold ETFs, validated by trading on the NYSE, will r
evolutionize the gold market,quot; said Ned Schmidt,
editor of the Value View Gold Report.
quot;Investors will be able to own gold with the click of
the mouse, rather than the cumbersome physical
delivery system,quot; and quot;investment advisers will no
longer have a viable excuse for not having gold in a
client's portfolio,quot; he said.
Over time, quot;ETFs will result in an extremely large
increase in the demand for gold simply because of
the additional liquidity and flexibility,quot; Schmidt said.
Analysts seem to agree that while demand for gold
will climb following the ETF launch, the effect won't
be immediate.
The quot;easy-to-use vehicle for gold investment has the
potential to open up huge, previously untapped
sources of gold demand from both retail and
institutional investors,quot; said Brien Lundin, editor
of Gold Newsletter.
But quot;the fund's effect will be seen over the long term,
as buying demand impacts the supply/demand
dynamic for gold and underpins the fundamental
forces that are already acting to lift the gold price,quot;
he said.
Given that, the slip in the ETF's share price on its
opening day is quot;misleading,quot; he said.
quot;The fund's value will be determined solely by the
gold pricequot; and quot;the price of gold, over the longer
term, will be influenced to some degree by the
volume of funds flowing into the gold ETF,quot; he
explained.
Commenting on the launch of the ETF, Erik
Gebhard, an analyst at Altavest Worldwide
Trading, said gold as an investment vehicle is now
quot;apt to gain credibility among Wall Street.quot;
quot;It would be a stretch to claim that the ETFs will
impact prices one way or another, but volume in
gold trading products could increase as the
popularity of the ETFs rise,quot; he said.
Still, quot;the underlying cause behind gold's recent
strength is the record decline in the U.S. dollar
versus the euro,quot; Gebhard said.
Back on Nymex, most other metals futures lost
ground in New York on Thursday, with the exception
of copper, which saw its December contract rise
1.45 cents to close at $1.425 a pound -- a
five-week high.
December silver followed gold lower, losing 11.3
cents to close at $7.552 an ounce after closing
Wednesday at its loftiest level since April. The J
anuary platinum contract fell $12.90 to end the
day at $862.70 an ounce. December palladium
closed at $219.80 an ounce, down $3.20.
Tracking inventories, copper supplies were down
284 short tons at 41,356 short tons as of late
Wednesday, according to Nymex. Silver stocks
were up 6,446 troy ounces at 101.6 million, while
gold inventories stood at 5.35 million troy ounces,
down 482 from the previous session.
On the equities side Thursday, after climbing in
three of the last four sessions, key metals mining
indexes headed lower.
The CBOE Gold Index closed at 98.2, down 2.1
percent, with a 3.3 percent fall in shares of Anglogold
Ashanti leading the decline. The sector-tracker closed
Thursday above 100 for the first time since March 1997.
The Philadelphia Gold and Silver Index fell 1.8 percent
to close at 108.31. The Amex Gold Bugs Index ended
the day at 239.37, down 2.4 percent, with more than 3
percent declines in Hecla Mining and Bema Gold
among the biggest losers. The two indexes closed at
10-month highs on Wednesday.
In metals news, South African miner Gold Fields Ltd.
said its second-quarter production will likely be up 5
percent to 6 percent from the first quarter amid
quot;excellentquot; performance at its South African
operations. The news failed to offset broad weakness
in the mining sector, however. Shares closed down 26
cents at $14.68.
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