Gold exchange traded funds (ETFs) have seen a dramatic interest in them as the dollar has sunk to record lows. These ETFs have also been popular among investors because they are viewed as a traditional hedge against rising consumer prices and general market turmoil. This could explain why they took in roughly $1.2 billion in September. During a month when credit woes weighed heavily on market sentiment, and the U.S. central bank cut its fed funds target by 50 basis points, gold prices, a traditional bellwether of inflation, jumped more than 10%, reports Simon Constable for TheStreet.com.
However, one gold-related ETF was much more popular than all the rest: the streetTRACKS Gold Shares (GLD). According to new data from the Boston-based Financial Research Corp., this ETF, which holds almost 600 tons of gold bullion, took in an additional $1.017 billion during last month alone, while iShares COMEX Gold Trust (IAU) had about $87 million in redemptions.
One possible explanation for the flood of cash into GLD was because of institutional investors that tend to favor ETFs compared to retail investors. Another factor is that the other gold bullion-related ETF, IAU, launched after GLD, so it loses recognition by being second. The other gold-related ETF PowerShares DB Gold (DGL) invests in gold futures, not the bullion. Finally, another reason GLD has hit it big is because there aren’t any mutual funds that invest directly in gold bullion. The year-to-date performances of the gold ETFs are below:
- streetTracks Gold Shares Fund (GLD) – up 24.2%
- iShares Comex Gold Trust (IAU) – up 23.6%
- PowerShares DB Gold (DGL) – up 6.0% for the last three months, having launched in early 2007.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.