Fans of the Chicago Cubs frequently find themselves saying “There’s always next year.” If gold exchange traded funds could express emotions, the sentiments for 2014 would likely be the same as those of Cubs fans.
On the surface, the year-to-date loss of 2.9% for the SPDR Gold Shares (NYSEArca: GLD) does not look that bad, but over the past six months, GLD and rival gold ETFs the iShares Gold Trust (NYSEArca: IAU) and ETFS Physical Swiss Gold Shares (NYSEArca: SGOL) are sporting losses north of 11%.
Many investors are not sticking around to find out what comes next for gold ETFs. GLD’s gold holdings on Tuesday slid to “712.9 metric tons, the biggest drop since June 2013. Assets declined to the smallest since September 2008,” report Millie Munshi and Phoebe Sedgman for Bloomberg.
In the fourth quarter, GLD, the world’s largest physically-backed gold ETF, has bled $1.7 billion in assets while IAU and SGOL have lost almost $67 million combined as slumping oil prices have prompted investors to ratchet back inflation expectations, diminishing the allure of inflation-fighting gold in the process. [Gold ETFs Lose Inflation Hedge Status]
Year-to-date, GLD has lost over $2.7 billion in assets, a total exceeded by just three other ETFs. The value of GLD’s assets “has dropped 13 percent to about $27 billion this year after slumping 57 percent in 2013,” according to Bloomberg.
Gold ETFs have also been stymied by the rise of the U.S. dollar, a theme that could again be prominent in 2015, particularly if the Federal Reserve raises interest rates.
other developed economies are enacting looser monetary policies. For instance, the Bank of Japan is implementing policies centered on a weaker yen, and the stubbornly low inflation rate in the Eurozone leaves the European Central Bank more room for stimulus measures.
Additionally, the Swiss National Bank is racing the ECB to the bottom, purchasing euros to defend its franc currency. Switzerland relies on its export industries, so the country has been depreciating its currency in response to heavy safe-haven demand. [Dollar ETFs Can do it Again in 2015]
The PowerShares DB U.S. Dollar Index Bullish Fund (NYSEArca: UUP) has been almost perfectly inversely correlated to GLD. Over the past six months UUP is up 11.6% while GLD is down 11.2%. Year-to-date, UUP has added $208.5 million in new assets, a total surpassed by just eight other PowerShares ETFs.
SPDR Gold Shares
ETF Trends editorial team contributed to this post. Tom Lydon’s clients own shares of GLD.