The SPDR Gold Shares (NYSEArca: GLD), the largest bullion-backed exchange traded fund in the world, is higher by nearly 5% over the past month and while GLD and rival gold ETFs have a long way to go to recoup the assets lost in 2014 and 2015, it is fair to say gold ETFs have started 2016 in sturdy fashion.
Gold futures and physically-backed ETFs were pressured last year amid speculation the Federal Reserve is preparing to raise interest rates, which has pushed the dollar higher. Higher interest rates would diminish gold’s attractiveness since the precious metal does not pay interest like fixed-income assets.
Even if rates rose a couple basis points, the continued low rate environment is good for gold, which does not pay a yield and would struggle to compete with yield-generating assets when rates rise. Making matters worse for gold ETFs are expectations for soft near-term demand at a time of year when gold demand is usually strong. [Doubters in Gold Rally]
But volatile global equity markets this year have prompted investors to reevaluate safe-have investments, bolstering gold in the process.
“Given gold’s performance, it’s not a huge surprise that gold ETFs took in $1.8 billion over what has been a volatile start for markets in 2016. What’s intriguing is how gold ETFs aimed at very different investors have shared in those inflows,” reports Eric Balchunas for Bloomberg.
Options traders have also been cozying up to various gold-related ETFs. On Monday, unusual bullish options activity was spotted in the Direxion Daily Gold Miners Bull 3X Shares (NYSEArca: NUGT). “optionMONSTER’s Heat Seeker monitoring system detected the purchase of 2,200 March 30 calls for $3.70 in less than a minute this morning. Volume surpassed open interest of 1,444 contracts, an indication new money was put to work,” optionMONSTER reported of NUGT.