gold ETF holdings

Market Volatility During February Drives Outflows from Gold ETFs

March 11th, 2018 by

There were a number of important shifts in market behavior that occurred during early February’s dramatic—albeit brief—correction in the stock market.

Here is one clear example: The largest gold exchange-traded funds (ETFs) saw major outflows amid the swings and gyrations in equities last month.

GLD Outflows Top $478 Million in February

gold ETF holdings

Source: BullionStreet.com

Buying physical gold, like coins or bars, remains a strong (and safer) source of investment demand for gold. However, it’s perhaps more common today for investors to speculate on gold prices by trading shares of a gold ETF.

As is true with many other sectors, gold ETFs provide a convenient electronic medium for those who want to quickly buy and sell gold (as opposed to holding the metal long-term).

In other words: Gold ETFs are generally a vehicle for gold speculation.

The rather significant outflows from the single largest gold ETF, the SPDR Gold Shares (GLD), during February indicates that investors were selling heavily.

It’s common for fund managers to sell gold to raise cash when the portfolios they manage lose value. This is seen as a preferable alternative to selling the stocks at depressed prices.

In all likelihood, the selloff was indeed triggered by investors covering their losses on stocks.

MarketWatch reported that the monthly outflows from GLD totaled nearly a half-billion dollars in February.

One of the next-largest gold ETFs, the iShares Gold Trust (IAU), actually saw close to $190 million in inflows during the month. It’s worth noting that IAU only manages about one-third the stockpile of gold (its “net assets”) as GLD.

Nonetheless, the price of GLD slumped about 2% over February, mirroring the movement in the gold price over that span.

A list of the leading gold ETFs according to experts was recently published at Investopedia.

Another Case of “Give Us Back Our Gold!”

The ETF market isn’t the only place seeing outflows of gold lately. Another might be the bank vaults of London’s gold district.

Sources in Hungary reported that the Hungarian National Bank will be the latest central bank to repatriate its gold reserves held overseas.

Many countries have for decades stored their gold outside of their borders, usually in London or New York City. This is where many of the world’s most secure vaults are located.

Hungary will join national banks in Germany, the Netherlands, and Austria that have already pursued the same strategy by taking possession of their foreign-held gold reserves. Switzerland has also explored repatriation of its gold.

The European Central Bank (ECB), the de facto central bank for all of the eurozone countries, holds its own sizable gold reserves.

Hungary is expected to bring home three metric tons of gold bullion (worth approximately $130 million) from London.

 

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.