Gold ETFs, including the SPDR Gold MiniShares (NYSEArca: GLDM) and SPDR Gold Shares (NYSEArca: GLD), were widely embraced by investors seeking safe assets last month.
“Holdings in global gold-backed ETFs and similar products rose sharply in June by 127 tonnes (t) to 2,548t – equivalent to US$5.5bn in inflows – as geopolitical uncertainty increased and central banks signalled a shift to a more accommodative policy over the coming months,” according to the World Gold Council (WGC).
Gold ETFs are pushing to upside amid increased expectations of a U.S. rate cut, even as some investors locked in profits from bullion’s recent rally. Gold is believed by many investors to be inversely correlated with interest rates. Rising interest rates make bonds and other fixed-income investments more attractive, so money will flow into higher-yielding investments, such as bonds and money market funds, and out of gold, which offers no yield at all during times of higher interest rates, and back into gold ETFs.
Gold ETF Leaders
“In North America, SPDR Gold Shares added 51t (US$2.2bn, 7.2%), and experienced its largest, one-day inflows of all time on 21 June, while iShares Gold Trust (NYSEARCA: IAU) added 12t (US$537mn, 4.6%) and low-cost gold-backed ETFs added $72mn or 3% of assets,” said the WGC.
Other popular gold ETFs trading in the U.S. include the Aberdeen Standard Physical Swiss Gold Shares ETF (NYSEArca: SGOL). SGOL seeks to reflect the performance of the price of gold bullion minus the trust’s expenses. The Shares are intended to constitute a simple and cost-effective means of making an investment similar to an investment in gold.
The GraniteShares Gold Trust (BAR) is another example of a fast-growing gold ETF. Most gold-backed ETFs are involved in physically holding gold bullion, bars and coins in a vault on investors’ behalf. Each share of the ETF is worth a proportionate amount of one ounce of the gold. Therefore a gold-backed ETF’s price will fluctuate depending on the value of the gold in the physical vault.
“Flows in the larger North American funds have been momentum driven with the recent price increase pushing y-t-d flows into positive territory (2.7% of AUM),” said the WGC. “Long-term strategic holders continue to add to low-cost gold-backed ETFs on a consistent basis, with inflows during 12 of the past 13 months, growing 84% percent over that period.”
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