Gold Investment Product Demand Strong

- December 2nd, 2011

Strong demand from retail and institutional investors for a new gold investment product has more than doubled the forecast objective of the Royal Canadian Mint’s IPO of securities tied to gold reserves.

By Dave Brown – Exclusive to Gold Investing News

The Royal Canadian Mint raised $600 million in an initial public offering of securities tied to its gold reserves, more than double its forecasted objective, according to Bloomberg sources.The new gold investment product was initially intended by the Mint to raise $250 million from sales in Canadian or United States dollars at $20 or $19.29 per unit. Although the terms of the sale are not disclosed publicly, strong demand from institutional and retail investors increased the size of the sale.

The gold offering consists of an exchange traded receipt which corresponds with a direct ownership of physical gold bullion held in custody by the Royal Canadian Mint. Proceeds from the sale of these receipts will be used to buy gold, and the buyers of the receipts will hold a direct investment position in gold. Units are currently listed on the Toronto Stock Exchange as Royal Canadian Mint (TSX:MNT). The minimum physical redemption on the program is 10,000 exchange traded receipts, currently worth approximately $200,000 and investors would be required to arrange for an armored car care facility. Comparing to other gold investment products that offer physical redemption properties, the minimum is generally a London good delivery bar valued at approximately $800,000.

Speaking with BNN, Beverley Lepine, Chief Operating Officer for the Royal Canadian Mint, indicated “we hear from customers in the market that buying gold is not always that easy, and the entire design of this exchange traded receipt was to try and offer an opportunity for investors to buy gold in a secure way, a cost effective way and a convenient way.” Suggesting potential gold or precious metal follow-on offerings, Ms. Lepine discussed, “obviously liquidity is very important in a product like this. For us this is not a ‘one-off’ at the Royal Canadian Mint. We intend to issue more traunches of the gold and we certainly have listened over the past few weeks as we’ve talked to retail organizations and institutions and I think silver is a strong possibility.”

Canadian investment fund industry

Last month in general was a particularly difficult one for the Canadian mutual fund industry with net redemptions on equity funds declining 84 percent from the previous October totals.  In total, net redemptions on equity funds in October combined to approximately $1.52 billion. In spite of this, the gold and precious metal fund market appeared to demonstrate continued demand. Familiar to gold investors, long term wealth management firm Sprott (TSX:SII) reported $655 million of net sales during the third quarter, including $306 million from an follow-on offering on its Sprott Physical Gold Trust (NYSE:PHYS)

Gold maintaining its shine

Bart Melek, Head of Commodity Strategy, TD Securities (TSX:TD), spoke about rising gold prices, “the concern is that the central banks, that include the Federal Reserve, will be unwilling to unwind that liquidity overly quickly. They will be more willing to risk higher inflation than drive the economy into a deflationary spiral. At the end of the day, they are going to continue to print money in the United States. In Europe, they will need to expand balance sheets to backstop this whole debt crisis issue. That ultimately means the opportunity cost of holding gold is getting lower and lower.”

Gold spot market price movement

The gold spot market price has declined slightly to trade in the range of $1737.21 per troy ounce, a decrease of 0.7 percent from the previous trading session based on disappointing news of increased jobless claims in the United States rising to 402,000. On Wedensday, spot market gold prices increased 1.8 percent following announcements of central banks’ coordinating actions to provide liquidity in the European financial structure. November closed with spot market gold prices increasing by 1.9 percent.

Gold investors and central bank observers may be anticipating the United States non-farm payrolls report on Friday as a market catalyst. Strong data on Friday could soften gold prices; however, if the data fails to meet expectations gold prices would likely demonstrate stronger valuations.


Securities Disclosure: I, Dave Brown, hold no direct investment interest in any company mentioned in this article.

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