Gold Looking to Claw Back After Recent ETF Exodus

Gold prices typically move opposite of the U.S. dollar, but both moved together in Tuesday’s trading session as the stock market bounced back after a 3,000-point shellacking in Monday’s trading session. Gold prices are attempting to claw back after the precious metal experienced a mass exodus in exchange-traded funds (ETFs) backing gold last week.

“Evidence of investor’s ‘dash for cash’ came from the gold market on Friday, where ~550koz [around 550,000 ounces]of net ETF outflows were recorded, the most in almost a year,” BMO Capital Markets said. “Gold and silver should benefit from the coordinated government action being taken at present, but only once the current wave of cross-asset selling has settled down.”

Where do gold prices go from here? Given the uncertainty fueled by the coronavirus, anything can happen at this point.

“I think it’s too early yet to call a bottom, but it feels like gold is trying to find its footing,” said Bob Haberkorn, senior commodities broker with RJO Futures. “On the whole story of the liquidity crunch in the futures market – where they were throwing out the baby with the bathwater – we’re past that point.”

Gold’s traditional use as a safe haven asset was challenged as sellers were scrambling to sell the precious metal in order to offset losses in equities.

“There was mass liquidation all over the place,” said Sean Lusk, co-director of commercial hedging with Walsh Trading, commenting that many market participants were going to the sidelines.

“Now, overnight and into the morning, you’re getting a little bit of a short-covering rally,” Lusk said. “Maybe cooler heads are starting to prevail.”


^BAUSTR data by YCharts

The U.S. government appears to be responding on tow to the coronavirus outbreak with a stimulus plan in place that could purportedly top the trillion dollar mark. This could help re-instill confidence back into the capital markets, including gold.

“Looking at this thing longer term….There seems to be a plan in place,” Lusk said. “And when there is a plan in place, it seems to calm nerves.”

Still, that doesn’t mean gold can’t turn south again, he added.

Investors looking to get gold exposure can look at funds like SPDR Gold Shares (NYSEArca: GLD)  and the SPDR Gold MiniShares (NYSEArca: GLDM). Precious metals like gold offer investors an alternative to diversify their holdings, and like other commodities, gold will march to the beat of its own drum compared to the broader market.

Traders looking for leverage can use funds like the Direxion Daily Gold Miners Bull 3X ETF (NYSEArca: NUGT), VanEck Vectors Gold Miners (NYSEArca: GDX)and the Direxion Daily Jr Gold Miners Bull 3X ETF (NYSEArca: JNUG).

For more market trends, visit ETF Trends.