Nearly any bullion investor worth their salt understands the vast difference between holding physical gold and buying securities (or bundles of securities known as exchange-traded products—ETPs—or exchange-traded funds) that are linked to the gold price. Simply put, if you don’t hold it, you don’t really own it; ETFs merely give an investment portfolio exposure to the gold market through a claim on paper to an amount of gold held elsewhere.
Nonetheless, the various gold ETFs are a fairly useful proxy for how the gold market is behaving, much like the way the gold futures market works (where contracts or certificates, rather than physical metal, are what changes hands). That makes it noteworthy that some $2.6 billion in funds have been pulled out of gold ETPs over the past 3 weeks as traders and investors alike remain uncertain about when the Federal Reserve will raise interest rates.
The FOMC will announce whether or not it adjusted its benchmark interest rate later this afternoon.
The gold market generally has been stagnant in the weeks leading up to the potentially momentous decision from the Fed on Thursday. Not only has gold been trading in its tightest range (only about an $8 intraday spread) since before the financial crisis in 2007, but the trading market has also been dormant. Gold futures have been seeing their lowest trading volumes of the year, halving their daily average for volume.
Consequently, nobody wants to move into new positions until they’re sure what the Fed is going to do—which, only an hour before Chair Janet Yellen speaks to the press and reveals the committee’s decision, is still up in the air. In addition to slack in safe haven demand, gold has also been known to (in most cases) move inversely of the U.S. dollar. The USD is on pace for its third consecutive years of gains against its peer currencies around the world; over the same time, gold is on track to fall for the third straight year.
Although this most recent period of investor funds fleeing gold ETFs is certainly noteworthy, it is indicative of a longer-term trend that has been going on since the precious metals plunged into a bear market a few years ago. $2.6 billion may have recently fled ETPs tied to gold, but a whopping $54 billion has been pulled out of these funds since April 2013.
Last week alone, the money leaving gold ETFs translated into 4.2 metric tonnes of the metal being sold out of the stockpiles held by the funds. Earlier in the summer, the total ETF holdings of gold in vaults nearly dipped below the 1,500-tonne mark, its lowest levels since 2009.
Major Gold ETFs
Here’s a list of some of the most popular (and largest) gold ETFs:
SPDR Gold Trust (NYSEARCA:GLD)
iShares Comex Gold Trust (NYSEARCA:IAU)
Direxion Shares ETF Trust (NYSEARCA:NUGT)
Physical Swiss Gold Shares (NYSEARCA:SGOL)
Merk Gold Trust (NYSEARCA:OUNZ)
ProShares Ultra Gold (NYSEARCA:UGL)
PowerShares DB Gold Fund (NYSEARCA:DGL)
For those who are unfamiliar with ETFs, NYSE Arca is a division of the Intercontinental Exchange (which owns the NYSE) where both stocks and options can be traded.
The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.