Gold Investors Bet on Price Recovery, Buy Gold-Backed Shares

June 15 -- Gold investors, undeterred by the metal's 22 percent drop in a month, increased their holdings of bullion-backed securities in the past two weeks, indicating they expect prices to rebound.

Exchange Traded Gold, which manages gold-backed securities, had 452 metric tons of gold under management as of yesterday, compared with 443 tons on June 1, Simon Village, principal of the London-based company said in an interview. Its gold-backed securities trade on exchanges in the U.S., the U.K., Australia, France and South Africa.

``If they were going to bolt, they'd have done it at a higher level, when it started to fall,'' Village said in the interview from London. ``Gold's got a second wind coming.''

Gold, which closed at $559.75 an ounce yesterday, has declined from a 26-year high of $730.40 on May 12. Prices have dropped on concern that higher interest rates will erode the appeal of gold as an alternative to stocks and bonds. Gold may rebound to as much as $700 by the end of the year, Village said.

Gold has gained for five consecutive years, the longest winning streak since the 1970s, on expectations the dollar will weaken. Some investors buy gold as a hedge against declines in the dollar. The metal has also been buoyed by increased demand from the Middle East, where consumers are benefiting from record crude oil prices.

Those factors will reassert themselves in the next several months, Village said. Jewelers and investors, particularly central banks and those flush with ``petrodollars,'' will help drive prices higher, he added.

Bank Vault

Gold-backed securities represent one 10th of an ounce of gold, and Exchange Traded Gold stores the metal in a bank vault. Private investors hold about half its shares, with the remainder held by money managers.

Streettracks Gold Shares, which trade on the New York Stock Exchange, account for about 79 percent of the company's bullion under management. Exchange Traded Gold says it controls about 92 percent of the world's market in gold-backed securities.

Village is a former director of the World Gold Council and managing director of HSBC Holdings Plc's South African unit.

Gold for immediate delivery rose $16.30 an ounce, or 2.9 percent, to $576.05 as of 10:48 a.m. in London.