Market Unrest Appears Good for Gold ETFs By MATT WHITTAKER

Money continues to flow into exchange-traded funds that focus on gold, despite the pressure that gold markets have at times faced recently as risk-averse investors fret over the impact of the credit crunch on economic growth.

This shows that gold, despite recent volatility as stocks have alternately swooned and rebounded, at its heart remains a safe-haven asset, some analysts said.

Gold ETFs allow investment in the metal without physical delivery, since the ETFs themselves physically buy gold to back outstanding shares. They then sell gold when investors sell shares.

Tradition Holds

"Some traditional attitudes are standing up to financial-market turbulence as investors pump money into gold exchange-traded funds despite volatile [gold] spot prices," said John Reade, head of metals strategy with UBS Investment Bank in a report last week.

Gold held in the world's largest such ETF, StreetTRACKS Gold Shares, have hit a record high of 515.44 metric tons, or 16,571,995 ounces. Those holdings are valued at more than $11 billion. Gold holdings for London-based ETF Securities Ltd. tripled last week to 331,835 ounces as nearly 200,000 ounces of gold were bought in a day.

StreetTRACKS Gold Shares is followed in size by LyxOR Gold Bullion Securities, which has a primary listing in London. The Comex iShares fund comes in third.

On Guard

Investors have been investing in gold ETFs to guard against political, economic and financial concerns, said Carlos Sanchez, precious-metals analyst with CPM Group. The current credit crunch is just the latest iteration of these types of financial concerns.

Holdings in the world's gold ETFs have been increasing across the board, with a combined total 23.6 million ounces as of Aug. 24, up from 20.2 million ounces at the end of last year, Mr. Sanchez said.

But Leonard Kaplan, president of Prospector Asset Management, cautions against looking at gold ETF inventories in a vacuum.

"You don't know how much of their success is due to cannibalizing" of other gold-trading business such as bullion, coin sales, physical demand and shares of gold mining companies, he said. "Just to look at that number alone is totally foolish. The fact that the ETF is rising is not by itself a bullish phenomenon.

"I would take it positively, certainly [but not] wildly so," Mr. Kaplan said.

Not surprisingly, Matthew Graydon, a spokesman for the World Gold Council, which was instrumental in creating the concept for physically backed gold ETFs, was more optimistic.

"Growth in exchange-traded funds is bullish for gold," he said. "We know from research that most of this has been demand from new investors who had not previously invested in gold -- there has been only a small amount of cannibalization from other forms of gold investment," he said.