Gold, TIPS ETFs Reward Big on Inflation Trade
October 11th 2012 at 12:00pm by John Spence
ETFs pegged to gold and Treasury Inflation Protected Securities have delivered the top risk-adjusted returns over the past five years on fears central bank easing would debase currencies, according to a report.
However, investors have been of two minds on these asset classes recently in the wake of the Federal Reserve launching QE3. [Central Banks Will Devalue Currencies, Gold ETF Bulls Say]
For example, investors have been piling into gold ETFs. The largest precious metal ETF, SPDR Gold Shares (NYSEArca: GLD), has raked in $3 billion since the end of August. [Gold ETF Bullion Holdings at Record After $3B Monthly Inflow]
About 191 metric tons of gold have flowed into related ETFs since the end of July, and buying in gold exchange traded products totaled nearly $8 billion in the third quarter, the highest quarterly inflow in over two years, MarketWatch reports. [Gold Rush is On in ETFs]
Conversely, investors have yanked $840 million from iShares Barclays TIPS Bond Fund (NYSEArca: TIP) since the end of August, according to IndexUniverse ETF flow data.
The outflows suggest investors are locking in profits after the TIPS ETF rallied to all-time highs, or see deflation as a greater threat than inflation. Additionally, the recent selling could mean investors are nervous that TIPS could be hurt if interest rates rise. [Deflation Warning? – Investors Dumping TIPS ETFs]
“Gold and TIPS are the most liquid way to get exposure to inflation,” said Michael Mullaney at Fiduciary Trust in a Bloomberg News report Wednesday. “The volatility in gold and TIPs will remain low going forward as the ugly head of inflation will emerge, and we will see a steady increase in gold demand.”
The gold ETF had a total return of 134% over the past five years, the best among the 10 biggest ETFs, and the third-lowest volatility, according to Bloomberg. The TIPS ETF had the lowest volatility and the third-highest total return.
SPDR Gold Shares
iShares Barclays TIPS Bond Fund
Full disclosure: Tom Lydon’s clients own TIP and GLD.
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