Gold exchange traded funds, both the physically-backed variety and miners funds, are among Monday’s top-performing ETFs, but investors should not expect a gold recovery to be a smooth ride.
The SPDR Gold Shares (NYSEArca: GLD), the largest physically backed gold ETF, is higher by 3.1% Monday on above average volume, an impressive recovery after bullion stumbled to a three-week low following news that voters in Switzerland rejected a ballot measure that would have required the Swiss central bank to hold some assets in gold.
GLD is still off nearly 5% over the past three months and even if there is follow through for bullion on Monday’s rally, elevated volatility could prove trying for investors.
“Options that protect against declines in a popular fund tracking gold have risen in price to the highest level in 15 months compared with a similar gauge for U.S. equities. The Chicago Board Options Exchange Gold ETF Volatility Index, which tracks derivatives prices on GLD climbed 19 percent last week to 25.17, the highest in more than a year,” reports Callie Bost for Bloomberg.
GLD’s elevated volatility arrived with November coming to a close, a month in which investors pulled nearly $823 million from GLD, a total exceeded by just two other ETFs. Year-to-date, GLD has suffered outflows of over $2.9 billion, a figure worse than all but three ETFs. [Hedge Funds Lost Patience With Gold]
Although the Federal Reserve has wrapped up its quantitative easing program, other global central banks, including the Bank of Japan and European Central Bank, continue to print money at a voracious pace. That indicates the global inflation outlook is benign, which pressures gold, an asset previously beloved for its inflation-fighting characteristics. [Real Asset ETFs for Inflation Defense]
“Options betting on a 10 percent drop in the gold ETF’s shares cost 3.34 points more than contracts wagering on a 10 percent gain. The relationship known as skew sits 40 percent above its 12-month average of 2.38,” Bost reports for Bloomberg.
Gold also got a lift Monday after India eased import restrictions on the yellow metal. The Reserve Bank of India has ended the requirement that mandated gold importers prove that at least 20% of bullion brought into the country be used for exports. India recently retook the top spot among the world’s gold importers from China.
SPDR Gold Shares
ETF Trends editorial team contributed to this post. Tom Lydon’s clients own shares of GLD.