Gold exchange traded funds witnessed large redemptions in the recent gold market collapse, and some argue that investors can track gold ETF inflows and outflows as a new market indicator.
So far this year, the largest gold ETF, SPDR Gold Shares (NYSEArca: GLD), has lost $14 billion in outflows. [Investors Pull $14 Billion from Gold ETF as Bull Market in Doubt]
“You watch the flow of money, and if there’s money flowing out of the ETFs, it’s going to negatively impact the price of gold,” Jim Wyckoff, senior analyst at precious-metals dealer Kitco Metals Inc, said in a Wall Street Journal article. “No matter what the supply-and-demand fundamentals [for physical gold]may suggest, if that money’s flowing, those prices are going to move.”
From January 1 through April 11, GLD’s holdings dipped 13% while the price of gold fell less than 6%. GLD’s gold holdings started to quickly decrease after April 12 as gold prices declined below $1,500 an ounce. [Gold, Silver ETFs Fall After Record Monthly Outflows]
“The overall gold market isn’t that big,” Eric Marshall, portfolio manager at mutual-fund manager Hodges Capital Management, said in the article. “So creating even a small amount of incremental demand through these ETFs, and making [gold]investible in a way it wasn’t previously, definitely does have an impact on prices. And I think that impact works to the downside just as it did to the upside a few years ago.”
According to the World Gold Council, around $236 billion worth of gold was purchased in 2012, with about 6% of total demand coming from ETFs. During the gold bull rally in 2009 and 2010, ETFs made up about 13% of total gold demand.
The World Gold Council, though, maintains that ETFs do not have a significant impact on gold prices.