Gold ETFs Losing Luster Quickly

February 20, 2013

GLD and IAU are bleeding value as gold prices slump, but gold miners are hit even harder.

Gold ETFs such as the SPDR Gold Trust (NYSEArca: GLD) and the iShares Gold Trust (NYSEArca: IAU) bled a lot of value again on Wednesday as gold prices fell to six-month lows, and although they saw a little reprieve in overnight trade, they remain wounded and very much in a downtrend.

The $67.5 billion GLD and the $8.7 billion IAU each shed about 2.6 percent Wednesday, extending losses that now have cost each of the funds roughly 6.5 percent of value in the past five days alone. What’s more, GLD’s price action Wednesday came accompanied by net outflows of $1.06 billion—the largest one-day outflow in 18 months—while IAU lost some $85 million in the same day. In the past one-week period, investors have pulled out $1.42 billion out of GLD and $231 million out of IAU, according to data compiled by IndexUniverse.

But the bleeding wasn’t confined to physically backed funds. In fact, gold miner ETFs—those that invest in the equities of companies mining and producing gold—were sliding twice as fast.

The Market Vectors Gold Miners ETF (NYSEArca: GDX) dropped some 5.1 percent Wednesday, extending losses that are now amounting to 11 percent in the past five days. Its smaller-cap counterpart, the Market Vectors Junior Gold Miners ETF (NYSEArca: GDXJ), has lost more than 14 percent in the same period.

Comex gold prices, now trading below what many see as a key technical level of $1,600 an ounce—the lowest readings since last summer—continued to face selling pressure as the U.S. dollar gained ground.

Behind the downward momentum in the yellow metal is no particular piece of news, but rather a consolidation of a stellar 2012 performance at a time when not only were investors racing for a safe haven, but central banks were buying gold at the fastest rates in some 50 years, analyst Sumit Roy said.

More recently, a changing attitude among investors—who are now expanding their exposure to riskier assets as they express a sort of “worst-is-over” sentiment about the global economy—has also pressured gold values, Nicholas Brooks, head of research and strategy for ETF Securities, said in a note issued today.

Indeed, last week alone, U.S. equities ETFs attracted net inflows of more than $870 million, with international equities gathering twice that amount, according to data compiled by IndexUniverse.

Still, no one is calling for the end of a decade-plus-long rally in gold prices because, if nothing else, current lows are already enticing bargain-hunting buying, albeit a test of the $1,500-an-ounce level is not out of the cards, Roy said.

“While the technical picture has fueled the liquidation of gold holdings, macro fundamentals suggest a potentially attractive entry level, as global financial markets remain awash with liquidity, global interest rates expected to remain extremely low for the foreseeable future and key macro risks lingering, particularly for the eurozone economy,” Brooks added in his note.


Find your next ETF