As investors search for alternative places to put their money, gold ETFs have been one of the main beneficiaries from the slaughter endured by global equities.
In fact, it’s been one of the only beneficiaries. As stock markets across the globe have tanked to begin 2016, most commodities have seen their prices continue to sink along with them. Gold, meanwhile, has gone the opposite direction amid the turmoil.
Good Start to 2016
Since the beginning of the new year, gold prices have risen better than 2.9%. (Meanwhile, U.S. stock indices have lost nearly 10% of their value over the same period.) It has been the best-performing commodity, and is among the best performer compared to all other assets so far in 2016. The movement for the precious metals relative to the stock market have been inverse due to safe haven flight.
Specifically, as the stock market has continued to post increasingly steeper losses, it has created a “self-fulfilling prophecy” wherein investors pull their money out of the falling market. In search for a safe haven for their money from these mounting losses, investors generally turn to three options: government bonds (like U.S. Treasurys), major currencies (like the Japanese yen), and gold.
Indeed, the yen has seen strength to start the year, firming to about 116.6 per dollar, its strongest level against the USD in over a year. Treasury yields have also fallen, indicating stronger demand. However, as these trends mean that bonds offer lower yields and the yen is more expensive, more and more investment dollars have flowed into gold—the most tangible safe haven and hedge against market turmoil.
For those who sought the high-risk, high-reward nature of emerging markets as a haven from the cracks in the global economy, these developing markets have seen their worst losses on record. Most investors are more familiar with ETFs than with physical commodities, making gold ETFs the logical ending point for their safe haven flight.
ETF Inflows and Outflows
Thus far this year, although there have been net outflows for silver ETFs, their gold counterparts have enjoyed positive inflows. The money pulled out of silver came predominantly from the iShares Silver Trust (NYSE:SLV), the largest of its kind, which saw outflows of 86 tonnes on Tuesday alone and -226 tonnes overall since 2016 began. This is part of why silver prices have not advanced as much as gold.
Nonetheless, the gold ETFs have seen their bullion stockpiles rise. Nearly half of the total inflow of 50 tonnes into these gold bullion funds came yesterday alone, the biggest daily increase since October of 2011. This has helped the largest gold ETF, the SPDR Gold Shares (NYSE:GLD) see its price increase by about 4% thus far in January. Even though the fund’s share price remains well below its 200-day moving average, GLD continues to see positive inflows.
Volatility has also become a driver for precious metal ETFs. Other gold ETFs such as the iShares Gold Trust (NYSE:IAU) and the ETFS Physical Swiss Gold Shares (NYSE:SGOL) have also risen as investors seek alternatives to the stock markets. The more uncertain trading on the equities markets becomes, the more attractive gold ETFs become. The same has not been true of the Platinum Group Metals, however: according to Commerzbank, platinum ETFs posted 12,000 ounces of outflows on Tuesday, while holdings in palladium ETFs were flat.
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.