Gold exchange traded products, such as the SPDR Gold Shares (NYSEArca: GLD), iShares Gold Trust (NYSEArca: IAU) and ETFS Physical Swiss Gold Shares (NYSEArca: SGOL), have recently encountered headwinds and investors are responding to that theme by departing from gold funds.
Despite the sell-off in recent months, GLD still managed to bring in $7.4 billion in net inflows for 2016. GLD saw $4.8 billion in outflows in the fourth quarter as the U.S. dollar strengthened and the Federal Reserve embarked on the path of interest rate hikes. GLD, the world’s largest gold ETF, was one of 2016’s top 10 ETFs in terms of new assets added.
Gold ETFs have also been grappling with the surprising results of last month’s U.S. presidential election. Investors widely expected gold to rally if Republican Donald Trump won the presidential election earlier this month, which he did, but that thesis proved incorrect. Democratic challenger Hillary Clinton may have actually been the preferred victor for gold ETFs because historical data suggest gold performs better when Democrats are in the White House.
Gold has enjoyed greater demand in a low interest-rate environment as the hard asset becomes more attractive to investors compared to yield-bearing assets. However, traders lose interest in gold when rates rise since the bullion does not produce a yield.
“In December, $2.27 billion was pulled out of SPDR Gold Shares, the world’s largest exchange-traded fund backed by the metal. That was a third straight monthly loss and the biggest since May 2013. Money managers have also turned less bullish on bullion, cutting their net-long positions for a seventh straight week to the smallest since February, U.S. government data showed Friday,” reports Luzi-Ann Javier for Bloomberg.
There are avenues for those looking to profit from more downside in gold. For instance, the ProShares UltraShort Gold (NYSEArca: GLL) provides a two times inverse or -200% daily performance of gold bullion.
Alternatively, ETN options include the DB Gold Double Short ETN (NYSEArca: DZZ), which tries to generate the twice inverse or -200% return of the daily performance of gold; DB Gold Short ETN (NYSEArca: DGZ), which tries to reflect the inverse of gold price movements; and VelocityShares 3x Inverse Gold ETN (NYSEArca: DGLD), which tries to reflect the performance of three times the inverse or -300% daily performance.
“Hedge funds and other large speculators pared their net-long positions by 23 percent to 41,247 contracts in gold futures and options in the week ended Dec. 27, according to U.S. Commodity Futures Trading Commission figures published three days later,” according to Bloomberg.
For more information on the gold market, visit our gold category.
SPDR Gold Shares (NYSEArca: GLD)
Tom Lydon’s clients own shares of GLD.