In spite of persistent calls for the imminent end to the gold rally so far in 2016, the gold bulls simply keep trucking along. The popular SPDR Gold Trust (GLD), the largest gold-backed exchange-traded fund (ETF), has yet to lose its luster for investors. It has in large measure become the preferred safe haven for institutional investors that are looking to protect their wealth from the mayhem of the financial markets.
Continued GLD Inflows
With the remarkable surge in gold prices to kick off the new year, it’s no surprise that GLD has seen commensurately large bullion inflows as shares continue to be gobbled up. According to data compiled by Bloomberg, in less than three months to begin 2016, gold ETFs as a whole have seen their physical stockpiles increase by 21%, or by 304 metric tonnes (9.785 million troy ounces). This brings the sector’s total holdings to an impressive 1,766 tonnes (56.775 million oz), the vast majority of which has been focused on GLD.
During Tuesday’s trading session, an unusually large bullish bet was made on GLD continuing to appreciate through December 2016. Judging by the high volume of the contracts traded (1,123), it was likely a major player as opposed to many individuals.
A note from financial services firm MKS, based in Switzerland, indicated that the inflows have consistently risen even after the price of gold pulled back slightly from its recent 13-month high. The note included the observation, “The last time we saw such a sustained gain in holdings was back in 2008-09, in the grips of the financial crisis.”
In just the past few days, 91,000 ounces of the yellow metal have been added to the sector’s three largest funds: GLD, the iShares Gold Trust (IAU), and the PowerShares DB Gold Fund (DGL). This doesn’t even include another large gold ETF, the ETS Physical Swiss Gold Shares (SGOL). GLD leads the pack in terms of gold ETF market share, with a market capitalization (market cap) of $32.5 billion.
Investment Pros Pile In
Contrarian investor Damon Verial, while writing for investment website Seeking Alpha, suggests that “GLD is seen as protection against a market crash.” Like MKS, he sees the current demand for physical gold is the highest since 2008 levels, when the financial crisis was at its worst. It also goes to show that savvy investors aren’t convinced that the chances of an utter market crash have abated: Even as the stock markets rallied last week, GLD rose right along with it. On Friday alone, 11.9 tonnes of gold were added to GLD, bringing its year-to-date performance 300% higher (a fourfold increase) compared to the same period in 2015, year-on-year.
You don’t have to take the advice of Verial or MKS to see the writing on the wall, however. Stan Druckenmiller, one of the biggest names in the hedge fund sector, has also staked an incredibly large position in the leading gold ETF. Druckenmiller’s family firm has invested just shy of 30% of its $977 million in assets into GLD as of the beginning of the year. This massive gold position aligns with Druckenmiller’s criticisms of the recklessness of current monetary policy.
This is simply more evidence that the large institutional (i.e. professional) money managers are piling into gold as their preferred insurance policy in anticipation of stormy weather ahead for the global economy.
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.