When we report out on exchange traded product (ETP) flows each month, investors are naturally very interested in the asset classes that have attracted large inflows.
But sometimes the big story isn’t where the money is going, but rather the asset class it’s exiting.
This was the case in February, when gold ETPs experienced $5.6bn in outflows – their worst month on record since the first gold ETP was launched nearly a decade ago.
Any time you see a record number like this, it generates a fair amount of discussion. But while ETP flows can certainly provide insight into shifting investor sentiment and emerging trends, it’s important to put them in perspective.
February’s gold ETP outflows still only represent less than 4.5% of the $128.2bn currently invested in the products. And even though this has been the second consecutive month of outflows in the category, gold ETP assets are still double what they were three years ago.
That said, it’s worth a closer look into what’s causing the selloff. First, there’s the recent weakness in gold spot prices, which have fallen nearly 6% year-to-date and about 17% from a record high of $1900.20 a troy ounce hit in September 2011. Another factor is a growing belief that monetary tightening from the Fed may occur earlier than originally expected, causing interest rates to rise. Add that to a stronger US dollar, continued demand for equities and a general shift away from traditional “safe haven” assets (such as Treasuries), and you can see why some tactical investors are pulling back on their gold exposure.