“Oil based ETF, ETP and ETN products tend to have inflows when prices are at extreme lows and outflows when prices are at extreme highs,” Sal Gilbertie, president of Teucrium, told ETF Trends. “Importantly, these flows of money seem to be a reaction to price movement, not a cause of price movement. Intuitively, it makes perfect sense that inflows of capital (buying) could help ease an oil price decline, and, conversely, outflows of capital (selling) might help dampen oil price increases. The SocGen paper is a welcome clinical example of how futures based energy ETF/ETNs may actually help stabilize prices, which would be good news for both markets and consumers.”
Additionally, gold bullion has also experienced greater price swings as investors plowed into precious metal ETFs and exited in droves to exacerbate the recent declines.
According to Société Générale data, gold ETPs attracted the equivalent of 279 tonnes of inflows in 2012. However, the gold ETP market experienced a huge 880 tonnes of outflows in 2013, which equates to about 30% of gold’s entire production in 2013, and has since continued to experience outflows.
So far this year, the SPDR Gold Shares (NYSEArca: GLD) has experienced $541.6 million in net outflows, according to ETF.com. GLD saw $3.2 billion in redemptions over 2014 and a lost a staggering $25.0 billion in assets over 2013.
“Flows out of gold ETPs have had an enormously bearish impact on the price of gold,” Société Générale said. “The importance of ETPs on gold’s price formation cannot be overstated. So much so, that in addition to speculative flows from managed money traders, ETP flow are also included in the precious metals drivers scorecard.”
For more information on the commodities space, visit our commodity ETFs category.
Max Chen contributed to this article.