SPDR Gold Shares (NYSEArca: GLD) saw record trading volume of nearly 94 million shares during Monday’s violent drop in the precious metal’s price. However, the gold ETF experienced very little in the way of net outflows, suggesting many traders viewed Monday’s 9% decline as a buying opportunity.
The $51.2 billion ETF saw net redemptions of only $189 million on Monday after outflows of about $1.1 billion on Friday, according to IndexUniverse data.
Monday’s slight redemptions mean that buyers and sellers were fairly evenly matched in GLD. There was no sign that investors in the ETF were panicking or capitulating in the face of the plunge in gold prices. [Gold ETF Record Volume]
“GLD is simply the way in which many people have established their exposure to gold. The price of gold is a function of supply and demand,” said Chris Hempstead, director of ETF execution services, in a note Tuesday.
It’s difficult to quantify the impact that bullion-backed ETFs have had on gold’s price during the way up in the historic rally. The physical markets — demand for jewelry and gold coins and bars — are primarily what determine the metal’s price. [Gold ETFs: What’s Behind the Drop and Will It Continue?]
But it’s hard to entirely dismiss the role that gold ETFs have played the past few years as the funds multiply in number and assets. After all, GLD would still rank high on the list of bullion holdings among the world’s central banks. There is no denying that ETFs have made it much easier to trade and invest in gold.
Now the question is if gold ETFs could speed a price decline if investors dump their holdings.