Even with a bit of a pullback for the precious metals since reaching all-time highs early this month, the momentum has seemed like a hedge against the dollar, but why has it slowed? ETF Trends’ CIO and Director of Research Dave Nadig joins Yahoo Finance’s “ETF Report” with Akiko Fujita to discuss the state of gold, and the great run it has had.

As Nadig explains, while there has been a slowdown, it’s still worth pointing out this comes after an incredible run no matter how one measures it.  Precious Metals ETFs have pulled in $37 billion year-to-date, clearly the strongest run in years.  And the performance of gold and gold ETFs have also been excellent – up 26%, vs. just 7.7% for the S&P 500.

But there are reasons to be concerned.  Demand for gold is almost entirely coming from ETFs. Bar and Coin demand is at 11-year lows. Jewelry demand is 50% of what it usually is, and central banks are buying 40% less gold than last year as well.

Watch Dave Nadig Talk Gold On Yahoo Finance

The only thing up is ETF demand. Gold ETFs globally put another 734 tons in the vault in the first half of the year, beating the 2009 full-year record of 646 tons over 12 months.

Nadig continues, “What that means is likely we’re going to continue to see volatility in the price of gold because this is very easy money to go in and out. Investors can get in and get out of their gold position 100 times a day if they want to, but not recommended.”

The other driver of price has been limited supply. Mine production is down about 15% over last year’s levels largely because of Covid-related shutdowns. As that supply comes back online, investors and the market could be in a precarious position.

Gold On The Mind

That in mind, gold is and remains a commodity of psychology.  Its only value comes from the universal acceptance that it’s a scarce substance we assign value to.  So, it’s traditional role as a safety, counter-correlated asset likely still drives investors, and the growing conversation about inflation also plays right into Gold’s hand. The price of gold could still go higher if those psychological supports remain or strengthen, even as supply comes back online.  Of course, if we saw a strong recovery in China and India, then we’d also get repurchasing pressure on the physical side.

In regards to news concerning asset managers have closed more ETF products than they’ve launched this year, Nadig acknowledges that it’s an actual stat, and the market has seen the open/close ratio dip below one for the first time. However, a lot of this was flushing a bunch of ETNs that needed to close based on fund issues related to the events of the year.

Related: Yahoo Finance: Tom Lydon On Finding Next FAANG Stocks 

That said, quite a few launches and categories this year have been surprisingly successful, from Non-transparent active products from folks like American Century to thematic products like Direxion’s WFH or RoundHill’s BETZ.  So, ETF innovation is absolutely alive and well.

In terms of the best options for investors, “If you look at where investors have been putting their money, they’ve really been across the board,” Nadig notes. “So we continue to see flows in those big, cheap, broad products. That’s a good thing for investors. But, we’ve also seen a lot of money flow into more defensive plays, whether that’s gold or a lot of the funds we’ve been talking about for the past year that play in similar roles.”

For more market trends, visit ETF Trends.