Exchange traded products, including the SPDR Gold Shares (NYSEArca: GLD), iShares Gold Trust (NYSEArca: IAU) and ETFS Physical Swiss Gold Shares (NYSEArca: SGOL), have made gold investing more affordable and accessible. Over the years, these ETFs and others like them trading outside the U.S. have become important drivers of gold prices.
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. Interest rates remain low in many developed markets and some emerging markets have been rapidly lowering borrowing costs this year.
While October flows for gold ETFs listed around the world were mostly flat on an aggregate basis, these products remain important avenues for gold market access and liquidity.
“Global gold-backed ETF flows were mostly flat in October as funds added 3.3 tonnes(t) (+$221mn, 23bps AUM) to global holdings. Outflows in North America mostly offset inflows in Europe,” according to new data from the World Gold Council (WGC). “Europe led inflows in October, as investors added 11.2t (+$523mn, 1.3% AUM) of gold through funds listed in the region. There were outflows in North America of -8.0t (-$305mn, -0.59% AUM), reversing some of its September gains. Asia funds gained 0.8t (+$33.8mn, 1.04% AUM). ETFs in other regions lost -0.7t (-$30.7mn, -1.71% AUM). The combined liquidity of gold ETFs increased modestly month-over-month to $1.37bn a day, an increase of six percent versus the year-to-date average liquidity of $1.29bn/day.”
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IAU was the only US-listed gold-backed ETF to notch notable October inflows. In the fourth quarter, investors have pulled money from GLD, but IAU and SGOL have seen fourth-quarter inflows of $363.1 million and $12.4 million, respectively.
“Global gold-backed ETFs collectively held 2,347.6t at the end of October. Funds added 182.2t of gold year-to-date, equivalent to $7.8bn, which represents an increase of 8% of global AUM from December 2016,” according to the WGC. “Gold ETFs account for a significant part of the gold market, with institutional and individual investors using them to implement many of their investment strategies.”
For more information on the gold market, visit our gold category.
Tom Lydon’s clients own shares of GLD.