The SPDR Gold Shares (NYSEArca: GLD), the world’s largest exchange traded fund backed by physical holdings of the yellow metal, has enjoyed a golden run in February.
Although GLD is trading slightly lower Friday, it is poised to post a February gain of more than 5% while notching its first month of inflows in the past 13. After an unprecedented 12-year bull run, gold prices plunged last year, forcing GLD lower by 28.3%. This year has brought an arguably stunning reversal of fortune for bullion and the ETFs that hold it considering the extreme levels of bearish sentiment that built against gold as 2013 went along. [Gold ETFs Rise to Multi-Week High]
In just the first two months of 2014, GLD has retraced more than a third of its 2013 losses while investors have shown a willingness to again allocate capital to gold ETFs. For example, GLD has added 10.54 metric tons to its gold holdings in February boosting its total to 803.7 tons, according to World Gold Council data. The ETF has brought in $255 million in new assets this year, according to the WGC.
Robust demand from China is helping. As Rhind points out, the world’s second-largest economy became the largest gold consumer last year and it’s not just the Peoples Bank of China that is spurring demand there. [Gold ETFs Shaking 2013 Drop]
“It’s not just central bank purchases (lifting demand in China),” said Rhind. “It’s consumer purchases. Because the renminbi is not a fully convertible currency, gold can be a beneficiary as Chinese investors look for other options to save and diversify their wealth.”
Gold may also be benefiting from a decline in Treasury yields this year, cementing the notion that some of last year’s woes for the yellow metal were attributable to Federal Reserve tapering talk. However, rising rates do not necessarily relegate gold to laggard status. As Rhind notes, gold can perform well with real interest rates in the 0% to 4% range.