The market upheaval this month has led investors into gold and out of equities in such force that the physical bullion fund, SPDR Gold Shares (NYSEArca: GLD), for two days, eclipsed the SPDR S&P 500 ETF (NYSEArca: SPY) as the world’s-biggest exchange-traded fund for the first time.
As of last Friday, GLD had $76.67 billion and SPY had $74.38 billion, according to data compiled by IndexUniverse. GLD’s rapid rise in assets reflects powerful inflows as well as spiking prices, just as SPY’s declining assets reflect outflows as well as the S&P 500’s 10 percent price slide this month. The changing of the guard continued through to Aug. 22, when GLD finished the day with $77.51 billion and SPY with $76.51 billion.
Comex gold futures settled on Friday at a fresh record of $1,848.90 a troy ounce, just as the S&P 500 Index slid 1.5 percent to 1123.53. In terms of flows so far this month, GLD has raked in $1.5 billion, while SPY has bled more than $7 billion in assets, according to data compiled by IndexUniverse.
GLD has captured more than $1 billion in the past two sessions -- Aug. 21 and Aug. 22 -- during which time the S&P 500 fell by more than 5 percent.
It wasn’t so long ago that SPY’s assets were quite near the $100 billion mark, but doubts and concern about banks in the eurozone and fading growth in the U.S. reversed an upward trend in SPY’s assets that remained in place until late in the spring.
At the end of July, SPY had more than $93 billion in assets, while GLD had just over $66 billion.
GLD isn't the only gold ETF to be hauling in assets this month. Other physical gold funds, such as the iShares Gold Trust (NYSEArca: IAU) and the ETFS Physical Swiss Gold Shares ETF (NYSEArca: SGOL) have landed $606 million and $121.6 million in new assets this month. The iShares fund had almost $10 billion in assets as of last Friday, while SGOL had $1.9 billion.
Also, Van Eck's Market Vectors Gold Miners ETF (NYSEArca: GDX) has brought in $924.4 million in new money so far in August. Overall, including price movements, the ETF now has about $8.68 billion in assets, or $1.5 billion more than at the end of July.
Murky Crystal Ball
What happens next for GLD and SPY is going to be a function of economic data and policy responses to the fiscal challenges in both the U.S. and the eurozone. Rumors are circulating that the Federal Reserve may be on the verge of launching a fresh round of "quantitative easing" aimed at stimulating the economy through purchases of assets such as Treasurys.
The sharp selling of equities and the flight to safe havens such as GLD began after Standard & Poor’s downgraded long-term U.S. debt early this month to “AA+” from a risk-free rating of “AAA.”
S&P cited a worsening fiscal outlook, and openly worried about the sometimes-shrill negotiations that took place in Washington, D.C. to raise the government’s borrowing limit. The ratings agency seemed to be suggesting that perhaps politicians aren’t up to the task that the U.S. faces.
Investors also seem to be concerned about the policy response to Europe’s debt crisis. To some investors, it’s a matter of too little too late, and others are plainly worried that the crisis will not be controllable should it spread beyond peripheral eurozone countries such as Greece.
More to the point, a lingering anxiety persists that the true focal point of concern is that European banks may have bought so much sovereign debt from barely viable countries such as Greece that they could be on the brink of insolvency.
SPY, The First US ETF
Whatever happens in the coming weeks or months, it’s hard to imagine that GLD’s assets are as sticky as SPY’s over the longer term.
GLD is serving as a reliable safe haven as investors wonder what’s next for the global economy, but as economies in the developed world stabilize, SPY is likely to reap the benefits of any renewed increase in investor confidence.
SPY, launched in January 1993, was the first U.S.-listed ETF. GLD came to market in November 2004.
Start talking with your kids about investing their own money.
Investors can take full advantage of China’s next stage of growth with a number of old and new ETFs.
While short-term tax implications are real, interest in the MLP space isn’t going away.
If you hate the VIX as much as I do, there just might be an ETF for you, but buyer beware.