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Thoughts On Gold From The Man Behind Industry's Largest ETF

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Thoughts On Gold From The Man Behind Industry's Largest ETF

Will Rhind is the CEO of World Gold Trust Services, LLC, a subsidiary of the World Gold Council. World Gold Trust serves as the sponsor of SPDR Gold Trust (ETF (NYSE: GLD), the world's largest physically backed gold ETF.

The World Gold Council's membership is comprised of the largest miners in the industry. Its job is to create and sustain demand for gold by seeking out new market development opportunities, running the Gold Trust ETF, working with central banks and publishing quarterly market statistics.

Benzinga spoke with Rhind about the global gold market:

How To Look At Gold

Rhind encourages investors to "look at gold not as a commodity, but as a currency." Like a currency, he said, it trades against other global currencies and has different relative values in different markets.

Gold, he noted, is quoted in U.S. dollars, but is priced in local currencies. As a result, the value of the precious metal was down in terms of the dollar last year, but up in terms of the yen and the euro.

Related Link: Gold Market Fears Fed Not Doing Enough To Fend Off Inflation

Rhind also highlighted the increasing exposure of gold to eastern markets – China and India now constitute over 50 percent of worldwide demand. Peter Tulupman, head of North American Communications for the World Gold Council, cautioned that many media outlets and analysts look at gold "through very U.S.-focused lens," although the market is increasingly shifting toward Asia.

According to Rhind, the center of the gold trade, which was traditionally London, is gradually moving to China and Singapore. Gold in these markets "trade at a premium to London, which partially reflects transportation costs," but also the fact that demand in these countries is higher, keeping the local price above the world price.

Lastly, Tulupman discourages investors from focusing too much on day-to-day, week-to-week or even quarter-to-quarter action in the gold market. He believes that it is more prudent to "take a broader view."

Supply

Rhind believes that supply of gold will be constrained over the long term. He mentioned two sources of supply: mining and recycling.

Mining production, he said, is expected to peak or plateau sometime over the next year and then begin a gradual decline.

Recycling, which comes primarily from the resale of jewelry, may be losing steam as the global economy picks up and the incentive to participate in cash-for-gold services weakens.

According to Rhind, this decrease in supply will be good for investors, as it will cause prices to increase.

Related Link: Oppenheimer Bullish On Stocks, Bearish On Gold And Oil

Investor Interest

Rhind said that interest in gold as an investment has declined in 2015. Earlier this year, the GLD ETF hit a high of $2 billion in inflows year-to-date, but as of Thuesday, there have actually been net redemptions over the course of the year.

He attributed this primarily to decreasing volatility in the market. "We see more interest in gold as volatility picks up...but volatility has been declining since the beginning of the year." When prices are more stable, according to Rhind, gold faces much more competition from equities and other asset classes, "which seem like they are hitting all-time highs every week."

He projects that the first interest rate hike by the U.S. Federal Reserve will be the next event to trigger a resurgence in volatility.

When The Fed Moves...

Rhind said that gold is particularly sensitive to U.S. macroeconomic events, because its price is quoted in U.S. dollars. Therefore, theoretically, a rate hike by the Fed would be a headwind for gold prices.

However, he believes that "any rate rise by the Fed has been priced into the market already." Furthermore, Rhind said that the consensus within the World Gold Council is that any increase this year would be "very moderate." Therefore, he doesn't expect gold prices to be impacted "in any meaningful way" when the Fed decides to kick up rates.

Related Link: Gold Pops $14 Following Fed Announcement

The Greek Question

Rhind thinks that the market "has been largely desensitized to Greece," as its precarious debt negotiations with eurozone creditors "[have] been going on for so long." He sees a high degree of complacency among investors, many of whom maintain that "whatever happens, Greece is going to get bailed out."

But if Greece were forced to default on its debt, Rhind said the ensuing events would likely bode very well for gold. He predicts that the financial instability that would arise from a Greek default and potential exit from the euro – not to mention the ripple effect that could also prompt Spain, Italy and others to leave as well – would make gold attractive as a risk mitigation factor.

So, although a crisis in Greece could have global investors cringing, those holding gold would likely be all smiles.

The Case for Gold

In Rhind's opinion, gold should play a role "in every diversified portfolio."

In "times like these, when other asset classes seem to be breaking highs all the time," he doesn't think it's counterintuitive to look at the precious commodity as a way "to take some risk off the table."

The SPDR Gold Trust ETF traded slightly down Tuesday and has sustained an 11 percent decline year-over-year.

Image Credit: Public Domain

 

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