FundWatch: ETF investors slow gold investments in 2010

By Claudia Assis, MarketWatch
SAN FRANCISCO (MarketWatch) — Last year's net inflows into
exchange-traded products backed by gold declined 41% from 2009 levels,
but were enough to ensure that 2010 was the second best year on record
for such instruments, a gold industry trade group said Wednesday.

Inflows into exchange-traded funds and other products backed by gold
reached 361 metric tons for all of 2010, the World Gold Council said.
That compares to inflows of 617 metric tons for 2009, the largest on
record, it added.

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Total holdings reached 2,167 metric tons worth about $98 billion as of
Dec. 31, a new high for holdings, the trade group said.

"This all seems to indicate that ETFs have become a convenient and
cost-effective route to access the gold for investors in multiple
markets," analysts at the World Gold Council said.

The group released its fourth-quarter and full-year 2010 investment
digest on Wednesday. Gold shone in 2010 in the wake of continued
global economic uncertainty, but gold's volatility was low
"providing a foundation for a well-diversified portfolio," the
trade group said.

Inflows into ETFs and other exchange-traded products have waned in
2011, however. The largest gold-backed ETF, SPDR Gold Trust
, has dropped nearly 20 metric tons from its Dec. 31
holdings, according to its web site.

SPDR Gold Trust had 1,260 metric tons as of Monday, the latest day for
which statistics are available.

The price of gold averaged $1,224.52 an ounce in 2010, compared to
$972.32 an ounce in 2009, the World Gold Council said.

Gold has fallen 6.3% so far this year. The contract for February
 ended $12.20 lower to settle at $1,332.30 an ounce Tuesday
on the Comex division of the New York Mercantile Exchange.

Gold's average volatility on a monthly basis has been 4.9% over the
past 10 years, the trade group said.

"Overall the trend remains very strong," said Juan Carlos Artigas,
the group's investment research manager. Mixed economic news around
the globe kept investors looking for investment alternatives.

Jewelry demand totaled 1,468 metric tons in the first nine months of
2010, a 18% rise compared to the same period in 2009.

Despite the rise in gold prices, continued economic growth in key
gold-buying countries "and a higher perception of value" for gold
jewelry both as a luxury and as store of wealth around the world
supported demand, the World Gold Council said.

Currency appreciation compared to the dollar also played a role,
Artigas said. While gold increased nearly 30% in 2010 in U.S. dollar
terms, it rose nearly 24% in Indian rupees and about 25% in Chinese
yuan, he said.

India and China are among the top gold buying countries, showing a
deep-seated proclivity to buy gold jewelry both as adornments and as a
store of wealth.

Demand for gold in industrial, technological, and dental applications
rose 19% over the first nine months of 2010, the trade group said;
consumer electronics alone consumed 26% more gold in that period.

Claudia Assis is a San Francisco-based reporter for MarketWatch.
Source: Marketwatch.Com