Further Gold Market update - Demand to increaseSummary
Following the success of its Australian initiative the Gold Bullion Fund (ASX:GOLD) launched in March of this year, the World Gold Council sponsored similar filings in both London and New York. While the New York listing (NYSE:GLD) remains caught in regulatory limbo, London has fast tracked the Gold Bullion Securities (LSE:GBS),set to begin trading on Dec. 9. In a rolling offering, GBS may issue up to 1 billion shares over the course of the next 12 months (100 million ounces or 3,110 tonnes of demand), the low end of total annual demand as reported by the Gold Fields Mineral Services (3,200 -4,200 tonnes). Realistically, the initial offering will likely be in the range of $500 million to $1 billion (1.25 and 2.5 million ounces or 40 to 80 tonnes). In short, the creation of the GBS will provide a significant catalyst to the physical market, supporting the gold price, which has been driven by speculators in recent months, well into 2004.
Gold Bullion Securities
· A World Gold Council initiative (66%) in partnership with Investor Resources Holdings Pty Ltd.(33%); market makers UBS and Deutsche Bank and HSBC acting as custodian.
· Will be the first U.K. listed and world’s largest gold vehicle. It is likely that the IPO will be considerably smaller than the 1 billion units (100 million ounces), more likely 1 to 2.5 million ounces, with a rolling 12-month offering to follow.
· The units will represent one-tenth of an ounce of gold (about $40.30 at current prices) and provide direct exposure to gold price.
· The net asset value of the units will reflect the value of the physical gold less expenses incurred (0.3% annually of the average weighted annual price, declining as assets increase).
· Transaction fees are 1-2%
· Listed on the LSE under symbol GBS. Liquidity is forecast to be high, encouraging larger positions.
Conclusions
The Gold Bullion Securities listing is an expansion of the World Gold Council’s Australian pilot project, targeting investors in the U.K. and Europe. Like its Australian and proposed U.S. counterparts, Gold Bullion Securities allows private investors to participate in the physical market while overcoming the hurdles normally associated with holding physical gold (notably insurance, storage and security), exposing investors to the gold price without the associated permitting, operating, political, and hedge book risks found in equities. Conversely, gold vehicles do not have the same leverage as the equities to gold price (historically 3.5:1). From a macro perspective, the U.K. listing and the pending New York listing are positive indicator’s for gold price going forward, acting as a catalyst for physical demand by opening ownership of the commodity to a range of new investors and increasing liquidity. The new Gold Bullion Securities will be the largest offering to date, anticipated to be significantly larger than the Australian or Canadian listed trusts, currently holding a combined 335,000 ounces or $134 million.