Gold's Record Rally Leaves ETF Investors Unstirred

The price of gold might be soaring to all-time highs, but ETF investors have nothing to do with it.

The precious metal is up 21% this year to a record of more than $2,500 per ounce, but flows for U.S.-listed gold exchange-traded funds have been flat to negative.

On a year-to-date basis, investors have pulled $3.2 billion from ETFs that hold gold. That includes outflows of $2.5 billion and $1.1 billion for the iShares Gold Trust (IAU) and the SPDR Gold Shares (GLD), respectively.

The SPDR Gold MiniShares Trust (GLDM), the second-cheapest gold ETF with an expense ratio of 10 basis points, has been a rare bright spot, with inflows of more than $500 million this year. 

Though weak on a year-to-date basis, overall demand for gold ETFs has been stronger over shorter time periods—inflows were just above $200 million over the past week and the past month—tepid totals.

The underwhelming flows suggest that gold’s ascent is being driven by other buyers, including central banks.

According to the World Gold Council’s latest data, total gold demand increased 4% year-over-year in the second quarter, marking the strongest Q2 since the year 2000.

The WGC pointed to strength in demand from over-the-counter investors and central banks, which offset weakness in the demand from buyers of jewelry, ETFs, and bars/coins. 

Gold used in the technology sector was another source of strength. The WGC attributed the 11% year-over-year gain in that category to the AI boom.

Relative Performance

It will be interesting to see whether gold’s rally entices ETF investors back into the market. The amount of gold held by exchange-traded funds peaked in 2020 and has been on a downward trend ever since.

Today, gold ETFs own just over 82 million ounces in aggregate, according to Bloomberg. That’s the same amount of gold they owned in 2012. 

Getting ETF investors to care about gold again might require better relative performance for the metal. 

While outperforming modestly this year—GLD is up 21% versus 18% for the SPDR S&P 500 ETF Trust (SPY)—gold ETFs have underperformed SPY significantly over the past five years (106% vs 63%) and 10 years (236% vs 86%).

That contrasts to the first five and 10 years after GLD launched in 2004, when the ETF trounced SPY, with a gain of 153% versus 4% (five years) and 159% versus 112% (ten years). 

Getting ETF investors interested in gold again might require an extended period of outperformance for the metal versus stocks—something we haven't seen in a long time.