After getting battered lower in the wake of Wednesday’s momentous rate hike decision by the Fed, the prospects brightened for gold ETFs and the group of precious metal ETFs broadly.
Thursday was a difficult trading day for the ETFs. Part of the immediate aftermath of the Fed rate hike was the market reaction. With the central bank set to pursue higher interest rates while reigning in excess liquidity in the market, many traders who are anticipating pain for the precious metals dumped their shares in those ETFs.
The largest gold-backed ETF, the SPDR Gold Shares Trust (NYSE:GLD) lost 2.2% on the day while also seeing twice its normal daily trade volumes. According to data compiled by Bloomberg, gold ETFs saw 4.9 tonnes of withdrawals on Thursday alone, the biggest single-day outflow in two weeks. More than 25 tonnes have been withdrawn since the start of December. The fund now holds less than 630 tonnes of bullion, its lowest inventories since September of 2008.
Meanwhile, Market Vectors Gold Miners ETF (NYSE:GDX), which tracks major mining firms, slumped by almost 6%. Its daily trading volumes were also high, 50% above average for GDX. Another similar fund, the Direxion Shares ETF Trust (NYSE:NUGT) saw double-digit percentage losses.
Outflows from ETFs Continue
All of the precious metal exchange-traded funds have seen net outflows in 2015, as a matter of fact. This was largely the case in 2014, as well. Gold holdings by these funds is down 9% on the year, tracking fairly closely with the gold price, while the total tonnage of metal leaving vaults is approaching the 163 tonnes that were withdrawn last year. The outflows from platinum (-11.4%) and palladium (-22.4%) ETFs have been even more severe. Funds backed by silver, on the other hand, have fared better, only losing 1.8% of their inventories this year. This steady stockpile obviously didn’t do much for silver prices, which also respond to industrial demand.
Unsurprisingly, Thursday also saw COMEX gold futures close at their lowest levels since 2009. Earlier this month, the net short positions held by hedge funds in the gold futures market hit new record highs.
With the precious metals prices up solidly during Friday’s session, their related exchange-traded funds saw the same upward action. GLD was up 1.4%, just below $102 per share, in afternoon trading. Note on the chart below that the steepest gains were made when volumes were at their highest, showing that the bulls were mostly having their way (for the day, at least).
Notably, Commerzbank (Germany) sees the various precious metal exchange-traded funds rebounding in 2016.
The iShares Gold Trust (NYSE:IAU) followed behind GLD, gaining 1.33% to about $10.30 per share. Similarly, the ETFS Physical Swiss Gold Shares (NYSE:SGOL) rose 1.45% to $104/share.
Partly as a correction from Thursday’s pummeling, each ETF tracking miners saw even bigger positive moves. GDX rose nearly 3% to $13.70 per share, and its smaller counterpart NUGT was better than 9% higher at $24.15 per share.
While the mining ETFs seem to respond to movement in the metals prices more acutely, they have also been a bit more volatile than the funds that are tied to physical stockpiles of bullion. It’s true that the mining companies are more subject to the whims of speculators, as well, which in part accounts for the discrepancies between them.
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.