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Gold investors hold on

09-28-2011 13:47 BJT

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In "dash for cash", gold ETF investors hold on

Amid the second-largest gold sell-off since 1983, the casual observer could be forgiven for thinking that investors were dumping bullion in droves.

Initial data suggests otherwise.

The loss of confidence that caused gold prices to fall 10 percent in the four days through Monday has not yet unnerved investors in the leading gold exchange traded fund, nor caused futures traders to close out positions en masse, figures show.

Gold is displayed at jewellery shops in Amman.

The resilience of retail and professional traders in the face of heavy selling -- much of it said stemming from hedge funds eager to dress up end-of-quarter performance or pay margin calls in other markets -- supports the idea that bullion's shudder was a correction, not the end of its run.

It also appears to run counter to some speculation that one or another of the big institutional holders of the SPDR Gold Trust, the world's largest gold ETF, might have been liquidated. John Paulson's hedge fund held 7.6 percent of the $65 billion fund as of June 30, data show.

Physical gold holdings by the SPDR dipped only 0.8 percent during gold's four-day slump, despite prices falling by as much as 15 percent over that period, according to the latest holdings data released on Tuesday.

At its lowest, gold was down more than 20 percent since a record high just four weeks.

The minor dip in holdings is remarkable, because many traders had initially feared that the advent of precious metal ETFs -- which five years ago opened up the gold market to many retail and institutional customers by making it as easy to trade as stocks -- would inject more volatility into markets.

Instead, those same investors appear to be holding firm to the view that gold is a better long-term bet with the euro debt crisis and a sputtering U.S. economy far from over.

"People are not going to be easily squeezed out of their investment based on longer-term, positive bias towards gold. It's not a mentality among funds and individual investors that's going to be easily shaken," said David Meger, director of metals trading at Vision Financial Markets, a futures brokerage.

"We really have to see a dramatic fundamental change here to change the overall investment view that gold is a safe haven," Meger said. "We have seen an aggressive price decline, but fundamentally I don't believe much has changed."

Editor:James |Source: CNTV

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