While 80 tons of gold ETF position which sold out in January and February, largely a result of portfolio rebalancing and investment in the future will likely continue to grow.

80 tonnes of gold were sold out of gold ETFs in the first two months of 2011 but, there is no need to worry yet that investors in these products are beginning to get cold feet about the yellow metal.

Speaking on Mineweb.com's Gold Weekly podcast, Jason Toussaint, MD for the US and Investment at the World Gold Council said that of the 80 tonnes sold in January and February, 67 of those tonnes were sold in January and 70 were sold specifically out of the SPDR gold trust.

"We need to remember that gold had a tremendous return in 2010. It was up 29% and what we were told directly from investors and their trading partners was that many investors took the opportunity to rebalance their portfolios because gold, whilst it may have been a fairly moderate position initially, because of its return relative to other assets, had suddenly become an outsized position," he said.

The other primary reason for the sale, according to Toussaint was a decision by some of the larger institutional investors (which account for roughly 47% of the SPDR holdings) to redeem their GLD shares in favour of holding bullion directly in their own names.

And, while the WGC doesn't see this move as an increasing trend away from ETFs, the organisation does take it as a good sign of gold demand strength more broadly because, as Toussaint explains, "when they [investors] are holding physical bullion, we take that generally as a sign that they are long term investors in physical bullion and are looking for the absolute minimum costs of holding those positions over the long run."

Asked about the increase in demand for physical gold in the form of bars and coins and how that might affect the ETF market, Toussaint says it is very difficult to predict investor attitudes towards one or the other but, he says, what is evident is that more and more investors are considering gold in a portfolio context rather than as just a collectible item and are beginning to decide on a personal level which the best vehicle for them is.

"A lot of that dialogue is occurring now with individual investment advisors who are best placed and positioned to give that particular sort of - if you will - access vehicle choice guidance to their individual clients," he adds.

Globally, despite the selloff that kicked off the year, Toussaint says investment demand for the yellow metal is increasing and, the demand is clearly being dominated by China and India.

"If you're a domestic Chinese citizen investing offshore is not a possibility in most cases - so you're looking at domestic equities and fixed income in real estate, and there is some concern about the correct state of each of those markets, so this diversification aspect into gold is coming to the forefront."

And, he says, "jewellery in India in the Asian markets, is viewed not only as adornment but as a physical investment asset as well which is a bit different than the way we view it in the West. I would say that against the backdrop of a vast creation of wealth in the middle class if you will or new wealth in India and China, the first marginal asset for accumulation tends to be gold. Therefore there is a large systemic factor in those markets that supports increasing gold demand."


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