merrill lynch buys a tonne of gold

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    Gold trust buys into bullion

    By: Ken Gooding

    Posted: 2003/06/15 Sun 15:03 ZE2 | © Mineweb 1997-2003

    LONDON – Merrill Lynch World Mining Investment Trust (LSE:MLW) has bought nearly a tonne of gold bullion to add to its portfolio. At the beginning of May the portfolio contained not a single ounce of the yellow metal.
    This suggests the Trust, which has a full London Stock Exchange listing, spent more than £6.5m on gold, or roughly US$10m, during May. At the end of last month 2.7 percent of its total assets of £243.4m were accounted for by the bullion.

    Graham Birch, managing director, sector funds, at Merrill in London, says the purchase was triggered by the fall in the value of the US dollar against other trading currencies which in turn boosted the gold price to $370 an ounce at one stage.

    “We look at gold [bullion] as cash. It’s just a different type of cash,” he explains. However, Birch also insists that gold is not an exact proxy for the dollar because “as gold falls by one percent, gold is likely to rise by 2 percent.”

    Birch adds: “Gold is not a bad investment at the moment. At $355 an ounce the price is not astonishingly high. There is plenty of scope for it to rise. We no longer see [gold producing] companies popping up to hedge as the price goes up and neither are central banks selling. That’s why we have an upward trending market.”

    He also has expectations that liberalisation of the gold market in China will help investment buying – “that will mean a quarter of the world’s population will be able to buy gold bars.” Also, the new securitised gold products, some backed by the World Gold Council, should help lift demand. “The average US institution has zero gold at present. These products will enable them to have some.”

    At the end of May the Trust had 26.1percent of total assets devoted to shares in gold producers. This compared with 33.4 percent in diversified mining groups, 19.2 percent in base metals producers and 9 percent in platinum companies.

    During last month the Trust bought shares in Placer Dome, the Canadian group, for the first time, obviously encouraged by Placer unwinding its hedging positions. The Trust usually invests only in unhedged gold companies.

    It also increased its holding in Ashanti Gold Fields, “with fortuitous timing, given that AngloGold announced a planned bid for that company shortly afterwards,” says Birch.

    Nevertheless, there are only three gold mining groups in the list of the Trust’s top ten investments: Buenaventura, the Peruvian company, accounts for 7 percent of total assets; South Africa’s Gold Fields 6.8 percent and Harmony 5 percent.

    Other companies in the list are: BHP Billiton (6.4 percent of total assets); Impala Platinum (6 percent); CVRD (4.9 percent); Rio Tinto (4.9 percent) Aber Diamonds (4.9 percent); Falconbridge (3.9 percent) and Inco (3.5 percent).

    At the weekend the Trust was still trying to solve the mystery of a Dow Jones report that suggested Merrill Lynch had, in a filing to the US Securities and Exchange Commission (SEC), indicated it had sold nearly 5m Buenaventura shares and reduced its total holding in the Peruvian company from 5.4 percent at the end of December to 1.97 percent by May 31.

    Birch says neither the Trust nor the Merrill Lynch Gold and General Fund, a London based unit trust (or mutual fund), had sold Buevaventura shares and between them they owned more than 1.97 percent of the latter group.

    Meanwhile, Deutsche Bank, on behalf of associates and clients, has been buying more shares in the World Mining Trust, adding over 500,000 in the second half of last week. This will have cost more than £600,000. The Trust share price ended on Friday at 125.5p to give it a market value of about £204m.

    After this buying spree, Deutsche associates and clients own 13.34 percent of the Mining Trust, a stake worth about £27m.

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