With the gold rally in full swing, bullion-backed exchange traded funds now hold a record store of physical metal as investors try to hedge against the depreciating U.S. dollar in light of the Fed’s decision to add another round of quantitative easing.
On Monday, gold ETFs held a record high 72.5 million ounces of physical gold, writes Deborah Baratz for Resource Investor. So far this year, total holdings have risen 3.5 million ounces, of which 2.7 million flowed into gold ETFs in the past month alone.
According to Barron’s, gold ETFs in aggregate are the fourth largest holders of physical gold in the world, ahead of the Italian and French central banks.
“With a good portion of gold’s recent strength accounted for by the sharp increase in spec positioning, this certainly raises concerns on the longevity of the [gold price] move, especially with fundamental buying virtually out of the picture,” Edel Tully, a strategist at UBS, told Reuters. “But the fact that the (ETF) camp – a relatively less-fickle group of buyers – has also been giving gold its vote of confidence offsets some of those worries.”
Gold ETFs are rising on the Fed’s QE3 progam. For instance, the physically-backed SPDR Gold Trust (NYSEArca: GLD) and iShares Gold Trust (NYSEArca: IAU) have both gained 3.9% in the past week and about 9.0% over the past month. [Gold, Silver ETFs Rally After Fed Announces QE3]
“Gold prices are highly sensitive to the evolution of the monetary base which expands during quantitative easing,” Société Générale analysts wrote in a research note. “During QE1 and QE2, gold prices increased 36% and 21% respectively.”
Investors can also look at the other two physically-backed gold ETFs: ETF Securities Swiss Gold Shares (NYSEArca: SGOL) and ETFS Physical Asian Gold Shares (NYSEArca: AGOL). SGOL holds bullion in Zurich vaults and AGOL stores its gold in Singapore. SGOL is up 3.9% over the past week and up 9.8% in the last month. AGOL added 3.5% in the last week and rose 9.0% over the past month. [Beyond GLD: Gold ETFs to Play the Breakout]
Additionally, the PowerShares DB Gold Fund (NYSEArca: DGL) tracks gold futures contracts. DGL gained 3.9% over the past week and 9.9% in the last month.
For more information on gold, visit our gold category.
Max Chen contributed to this article.
Full disclosure: Tom Lydon’s clients own GLD.