ETF Trends
ETF Trends

Demand for gold exchange traded funds was cut by more than half last year as volatility and sell-offs in the precious metal contributed to lower ETF buying, according to a report from the World Gold Council released Thursday.

Gold demand from ETFs fell to 154 metric tons last year from 367.7 in 2010.

“ETF demand, representing a cross section of investors, saw growth slow year-on-year, but picked up towards the latter quarters” of 2011, the World Gold Council said. [Are ETF Flows Sending a Warning Signal on Gold?]

“While bar and coin demand has grown on a year-on-year basis, ETF demand has slowed and over-the-counter (OTC) investment has fallen,” according to the report. The data suggest “ETF and OTC investors have not been accumulating gold at rates that some commentators maintain.” [Gold ETFs and Inflation]

Buying and selling patterns in gold ETFs may be a better measure of long-term demand for the metal, rather than a short-term indicator, analysts say. [Measuring the Impact of Gold ETFs]

Many individual investors and advisors tap ETFs to get liquid exposure to gold. Some funds hold bullion while others track futures contracts. Many prominent hedge fund managers also use ETFs to invest in the precious metal. [Paulson Sells More of Gold ETF]

“With respect to ETFs, investors also slowed down their purchases in 2011. This was in part due to rebalancing and profit-taking but also because a large number of investors had gained exposure to gold through ETFs earlier (notably in 2009) than those accessing gold through gold bars and coins,” World Gold Council said.

“If 2008/2009 is a guide, then it is possible that both ETF and OTC demand growth will resume again in the next few quarters,” according to the report. “In fact, ETF demand in the latter half of 2011 made strong year-on-year gains, signaling keep opportunistic buying at lower prices.”

In terms of performance, gold ETFs are up about 10% so far in 2012.

SPDR Gold Shares (NYSEArca: GLD)

Full disclosure: Tom Lydon’s clients own GLD.

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