“Investors whose purchases more than doubled the fund’s capitalization since 2008 were just as eager to sell amid signs of weakening economic growth in China and liquidation by central banks,” Bloomberg reports. “The SPDR Gold Trust, which balances supply and demand by creating and redeeming shares, has pulled more stock from the market this year than ever before.”
“It’s affecting the gold market because that ETF no longer needs that gold to support that share count and it’s being unloaded into the marketplace,” said Michael Cuggino at Permanent Portfolio Family of Funds, in the story.
“The tradability of the ETF relative to trading gold in the spot market does make these price shocks more pronounced,” added Paul Baiocchi, a senior ETF specialist at IndexUniverse. “It’s a fair point to say that the ETFs have had some impact on gold prices. What that is and to what extent remains in question.”
Agnes T. Crane at Reuters Breakingviews said ETFs have contributed to gold’s gyrations this week.
“Though it is still not clear what sparked the slide on Friday and Monday, stock-like ETFs added to the selling pressure. It’s a reminder there’s a dark side to making illiquid assets easier to trade,” Crane wrote. “Though ETFs represent only a sliver of the overall gold market, their liquidity and transparency make them an obvious benchmark for sentiment. Moreover, the ability to add and shed holdings quickly – unlike, say, storing bullion in undisclosed locations – can exacerbate price swings.”
SPDR Gold Shares
Full disclosure: Tom Lydon’s clients own GLD.