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1) Easing programmes in Europe and the US means the world is flush with money
The constant easing programmes, like the quantitative easing programme (QE3) by the Federal Reserve and bond buying programmes by the European Central Bank has unleashed fresh liquidity into the global financial system, which is finding its way into gold and particularly gold ETFs.
Easing programmes generally involve buying securities to flush the global system with liquidity in order to support growth. However, instead of lending and supporting growth many banks and institutions are deploying the money into assets like gold ETFs.
2) Asset choices limited
While there is a surplus liquidity in the global economy, the asset choices are limited. For example, the big fund houses are reluctant to deploy large amounts in the equity markets given the fragile nature of economic recovery. Hence, given that risk, fund managers are preferring gold ETFs.
3) No hoarding physical gold
Unlike physical gold, where there is a need to hold gold, which can be subject to theft and other storing costs, Gold ETFs are held in electronic form. They also give one the option to convert the electronic form into physical form if necessary.
4) Fragile economic recovery, means gold remains the best
Investors are finding comfort in gold, given that there is a recession in the eurozone; the US has fiscal cliff hangover and China is witnessing a severe slowdown. Gold and Gold ETFs hence continue their safe haven tag in a risky environment.
5) No storage costs and no risk of theft
Unlike physical gold, ETFs are held in electronic form and there is no need to hold physical gold and fear theft, as well as incur storage costs.
The Gold ETF and gold sheen is unlikely to go away anytime soon, so just ride piggy-back on the existing schemes.
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