April 1, 2011 / 12:50 AM / 9 years ago

REFILE-UPDATE 1-Gold ETF posts biggest quarterly outflow since 2004

(Refiles to additional subscribers)

* SPDR posts biggest quarterly drop since inception

* Investors seen shifting to other commods, bonds (Adds details, quotes)

SINGAPORE, April 1 (Reuters) - The world’s largest gold-backed exchange-traded fund, New York’s SPDR Gold Trust , posted in the first three months of 2011 its biggest quarterly drop since inception as the prospect of interest rate hikes and gains in other commodities drove investors to sell.

The SPDR Trust, which issues securities backed by physical stocks of precious metal, said its holdings stood at 1,211.229 tonnes by March 31, down 5.4 percent from 1,280.722 tonnes in the quarter to December 2010. That represents the holdings’ biggest quarterly drop since the trust was created in 2004.

Concerns about inflation, nervousness about the health of the global economy and geopolitical turmoil in recent years have drawn investment into exchange-traded vehicles such as the SPDR, which issue securities backed by physical metal and allow investors to gain exposure to underlying gold prices without taking delivery of the metal.

The SPDR’s holdings are equivalent to around half of global annual mine supply and are worth some $56 billion at today’s prices.

“There’s a likelihood central banks around the world may raise interest rates soon. This could increase the opportunity cost of holding gold and reduce its appeal,” said Ong Yi Ling, investment analyst at Phillip Futures in Singapore.

Several top U.S. central bank officials have said further bond purchases by the Federal Reserve were not needed to support the economy, while European Central Bank President Jean-Claude Trichet noted his inflation concerns from rising food and energy prices. [ID:nSLAUEE7RO] [ID:nN30180403]

SPDR Gold Trust holdings have seen a steady decline since hitting a record at 1,320.436 tonnes on June 29 of last year, but ETF is still the world’s sixth-largest holder of gold after the United States, Germany, the International Monetary Fund, Italy and France.

Gold struck a record around $1,447 an ounce on March 24 because of a falling dollar, violence in the Middle East and North Africa, as well as chances of a Portuguese bailout.

But compared to Brent crude LC0c1, and even silver, , gold is an underperformer, having gained less than 2 percent this year. Brent and silver have risen more than 20 percent each, with iShares Silver Trust holdings at record high at 11,139.52 tonnes by March 24.

Silver often tracks gold higher but renewed concern over the euro zone sovereign debt crisis has ignited investors’ interest in the cheaper precious metal.

A slowdown in interest in SPDR was also blamed on a global push to temper wild swings in derivative markets, making it much simpler to buy gold bars directly from the physical market and store them in banks. [ID:nN28221857] [ID:nN28221857]

“If gold behaved like copper, you would expect the price to come off when you see a buy strike, but it seems there are people who are willing to fill that gap in terms of physical market flows when the ETF buying dries up,” said Hayden Atkins, a London-based analyst at Macquarie Bank.

“There is lots of physical retail buying outside of the ETFs, through Asia in particular.”

But some dealers said hopes for a sustainable recovery in the U.S. economy and a stock market rebound also robbed gold of some of its appeal.

U.S. private employers added more than 200,000 jobs in March while planned layoffs fell, underscoring expectations that labour market momentum will help underpin recovery. [ID:nN30275708]

“If you are looking for a hedge against inflation, there are other assets you can buy, such as inflation-protected securities,” said Ong at Phillip Futures.

“Amidst the current geopolitical uncertainty, investors could view other commodities such as oil more favourably than gold.” (Reporting by Lewa Pardomuan, Jan Harvey and Nick Trevethan; Editing by Clarence Fernandez)

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