Massive creations in GLD show gold has regained its safe-haven allure with a vengeance.
The SPDR Gold Shares (NYSEArca: GLD) hauled in $1.3 billion in new assets today and gold futures reached a record, as stocks tumbled about 6 percent on heightened anxiety about the state of the economy in the aftermath of Standard & Poor’s historic downgrade of U.S. sovereign debt last Friday.
The creations were part of a huge move into precious metals that propelled Comex gold futures spiked $61.40, or 3.7 percent, higher to a record close at $1,710 .20 a troy ounce. The Dow Jones industrial average meanwhile plummeted 634.76 points, or 5.55 percent, to 10,809.85 and the S&P 500 fell 6.66 percent to 1,119.46.
Flows into GLD this month now total $2.5 billion, just shy of the $2.68 billion that flowed into GLD in July, an official at Boston-based State Street Global Advisors said in a telephone interview. SSgA is the fund company behind GLD.
The sharp declines in stocks began last week in connection with nervousness surrounding difficult negotiations in the U.S. Congress aimed at raising the U.S. government’s borrowing limit. The talks ended with an agreement that didn’t meaningfully address the U.S. budget deficit. Those rancorous Congressional talks and the unaddressed fiscal challenges led to the S&P downgrade late Friday evening.
The Dow's performance was the one-day drop since Dec. 1, 2008 at the depths of the financial crisis that was triggered by the collapse of Lehman Brothers in September of that year. But significantly, credit markets are functioning normally this time around, meaning that simple fear, rather than a complete breakdown of financial markets, is driving the selling of stocks and the buying of gold.
GLD ended Friday’s session with about $68.5 billion in assets, which means that between today’s $1.3 billion in creations and its 3.3 percent gain, the physical bullion ETF now has well over $70 billion in assets.
That means GLD could be on the verge of surpassing the SPDR S&P 500 ETF (NYSEArca: SPY) as the world’s biggest exchange-traded fund. SPY ended Friday’s session with just over $80 billion in assets.
Another popular physical bullion ETF, the iShares Gold Trust (NYSEArca: IAU), gathered $190 million in assets on Monday, according to an official at San Francisco-based iShares, the biggest ETF company in the world. IAU ended Friday’s session with $8.6 billion in assets.
Downgrade Leads To Downgrades
S&P downgraded long-term U.S. sovereign debt from a risk-free “AAA” to “AA+,” which led to a slew of related downgrades, including of some of U.S. government-sponsored entities such as Fannie Mae and Freddie that are backed by the federal government. It also said the U.S. outlook was "negative," a suggestion that another downgrade is at least in the realm of possibility.
Additionally, many ETFs that hold government debt were downgraded. Among those were the iShares TIPS Bond Fund (NYSEArca: TIP), which was assigned a rating by S&P of “AAF, or two notches below its previous rating of “AAAF," iShares officials said today in a conference call.
Also, S&P lowered the rating on the company’s huge iShares Barclays Aggregate Bond Fund (NYSEArca: AGG) to “AF” from “A+F.” AGG ended Friday’s trading session with $12.38 billion in assets, according to data compiled by IndexUniverse.