Gold ETF demand falls to seven-year low in 2011

Demand for gold ETFs fell to a seven-year low in 2011 even as overall investment demand for gold hit a 14-year high, according to the World Gold Council.

Figures from the WGC show ETF demand amounted to 154 tonnes in 2011, the lowest level since the 133-tonne demand seen in 2004. On a dollar basis, the $7.8bn dollar demand was the lowest since 2007's figure of $5.7bn.

The trends suggest "ETF and OTC investors have not been accumulating gold at rates that some commentators maintain," the Council's annual gold demand trends report said.

The report said the drop was in part down to profit-taking and rebalancing, but also due to the fact a large number of investors had gained exposure to gold via ETFs earlier than those accessing the metal through bars and coins.

The WGC noted 2011 was a year of "two clearly identifiable halves with respect to ETF demand," with interest picking up again in the second half in response to the ongoing European debt crisis.

Some major investors did dispose of significant gold ETF holdings in the final six months of the year, however: a filing from Paulson & Co earlier this week revealed hedge fund manager John Paulson sold 45% of his gold ETF holdings in the second half of 2011.

Paulson held 31.5m shares in the SPDR Gold Trust at the end of Q2 before reducing the position to 17.3m shares by the end of the year as he diversified into other gold-related holdings and, according to Reuters, met client redemption requests.

The WGC report said it was possible gold ETF demand growth would resume again in the coming quarters.

"ETF demand in the latter half of 2011 made strong year-on-year gains, signalling keen opportunistic buying at lower prices," he said.

After peaking at a record high of $1,911 a troy ounce in August, a slump in value saw the gold price close the year at $1,563. The precious metal has since recovered ground and is currently trading at $1,709.9.

On a wider basis, the investment demand for gold globally reached a 14-year high in 2011, with China, India and Europe all reporting record levels of demand. Europe has now experienced seven consecutive years of demand growth, the WGC said.