Gold-backed exchange takes a knock
ASSETS in the world’s biggest gold-backed exchange-traded product slumped to the lowest since the start of the financial crisis as equities rallied and investors prepared for the onset of higher US interest rates, hurting demand.
Holdings in the Standard & Poor’s depositary receipt (SPDR) gold trust dropped 0.2 percent to 704.22 tons on Wednesday, the lowest level since September 2008. That’s the month that Lehman Brothers collapsed, spurring a rout across global markets. Since peaking in December 2012, they have contracted 48 percent.
Gold prices have been trapped in a bear market as the US economy’s recovery from the crisis sent equity markets surging and cut demand for haven assets. Purchases of American Eagle gold coins from the US Mint had the weakest May in eight years and Perth Mint’s sales were the lowest since 2012. World equities climbed in 2015 as US stocks reached a record and the main gauge in China more than doubled in 12 months.
“Demand is terrible, to say the least,” said David Lennox, a resource analyst at Fat Prophets in Sydney. “We see no real joy coming out of the physical market for gold. Speculators got hammered a couple of years ago and they’re not going to come back in a hurry.”
After Lehman’s bankruptcy, the world’s central banks unleashed unprecedented stimulus, sending gold to a record in September 2011 on bets that inflation would accelerate. Instead, consumer costs stayed stable, and the precious metal fell in 2013 and 2014. Prices are little changed this year amid bets the Federal Reserve is getting closer to raising rates.
Gold for immediate delivery traded at $1 186.54 (R14 661.40) an ounce in early afternoon in Singapore from $1 186.06 on Wednesday. Bullion’s lost 38 percent since rising to a record high of $1 921.17 in September 2011.
Total holdings in gold-backed exchange traded products dropped to 1 586.9 tons on Wednesday, the lowest since 2009, according to data. The hoard slumped 40 percent since reaching a record 2 632.5 tons in December 2012.
Not everyone is selling. Billionaire hedge fund manager John Paulson maintained his holding in the SPDR for seven consecutive quarters to March 31, according to a filing last month. The 10.23 million share stake is the fund’s largest. Higher rates diminish the appeal of bullion, since it does not pay interest like competing assets, such as new bonds. The outlook for increasing borrowing costs has also driven gains in the dollar, reducing demand for precious metals. – Bloomberg “We are getting back to a place where we are playing offence with price to best serve our customers,” said Deisha Barnett, a spokeswoman for Wal-Mart.
“We believe that our suppliers’ best investment for our customers is an investment in price, not an investment in co-op advertising or a temporary discount.”
The retailer, famous for appealing to thrifty shoppers, also is doing fewer promotional displays for specific items within the aisles of its stores.
Wal-Mart is touting the changes as a return to founder Sam Walton’s emphasis on everyday low prices, or EDLP, a philosophy that discourages customers from looking for promotions and specials.
Chief executive Doug McMillon and US division head Greg Foran want suppliers to adopt the same philosophy: They should concentrate on cutting costs – not budgeting money toward ads or limitedtime promotions.
Kellogg chief executive John Bryant also cited the reemphasis on EDLP after the company’s latest earnings report, saying it had an adverse impact on business.
When asked to respond to the suppliers’ remarks, Barnett said: “Change isn’t easy.”
Wal-Mart alerted its vendors to one aspect of the new policy in April, when it distributed a new guide for print, radio, television and digital ads. Except in special circumstances – such as an ad for a new product that is exclusive to Wal-Mart – the company prohibited suppliers from naming it in commercials. On the occasions when Wal-Mart is identified, the ad must “strengthen Wal-Mart’s EDLP message”.
The result is that ads may point shoppers to competitors like Bed Bath & Beyond and Target, not Wal-Mart, even though the products are still available there. – Bloomberg