The world’s biggest gold ETF has been losing assets all year; when will it end?
The SPDR Gold Shares (NYSEArca: GLD) is bearing the brunt of perhaps the worst case of investor cold feet it has faced since the fund first came to market in November 2004. The fund has now bled assets every week this year with the exception of one week in March, putting total net redemptions so far in 2013 at a whopping $16.6 billion.
Investors have yanked anywhere from $64 million to $2.31 billion in any given week year-to-date, with the exception of the week of March 25, when net asset flows were zero, according to data compiled by IndexUniverse. That’s 22 weeks out of 23 of near-relentless asset-bleeding.
The outflows have been accompanied by slumping price performance that has dragged shares of the fund down almost 18 percent since Jan. 1. They have also weighed on prices of physical gold, now down 17 percent year-to-date—gold closed at around $1,360 an ounce last week.
At no other time since its inception has GLD seen such sizable investor exodus. In fact, in the fund’s 8 ½-year history, it has only had net outflows in 2011, when redemptions totaled $533 million. Still, even that year, the fund posted a solid 8.5 percent price gain, ending the year above the $150-a-share mark.
Behind the slide this year are growing views that the economic recovery is finally beginning to gain traction, which has undercut the fear-based buying associated with gold. Moreover, the inflation so many worried about has simply not yet materialized.
GLD net flows in millions of dollars. Data compiled by IndexUniverse.
Net flows in millions of dollars. Data compiled by IndexUniverse.
The $45 billion fund—the world’s first and largest gold bullion ETF—has now dropped a spot in the ranking of largest ETFs. It ended 2012 with more than $72 billion in assets.
Still, the fund remains one of the most widely traded ETFs in the market, and that’s what makes the recent action in GLD so interesting.
The GLD sell-off may be distorting the true picture of actual supply and demand for the physical metal itself, as IndexUniverse ETF analyst Paul Baiocchi pointed out in a recent blog.
That distortion is not necessarily showing signs of straightening itself out either, even though the drop in price has boosted demand for the yellow metal in places like China and India.
That said, some are increasingly concerned that physical demand for gold in China and India may decline amid slower-than-expected economic expansion as well as struggles with government intervention and currency fluctuations.
Meanwhile, China approved the country’s first gold exchange-traded products, paving the way for Chinese investors to buy and sell the yellow metal like a stock, HardAssetsInvestor.com analyst Sumit Roy reported.
“Gold ETFs should help boost gold demand as they will make Chinese investments in the bullion much easier,” Zhang Bingnan, secretary-general of the China Gold Association, was reported as saying on HAI today. “The dumping recently of holdings in gold exchange-traded products by overseas investors may not prove to be a wise move.