ETF Investors Dumped $13 Billion in Gold This Year

ETF Investors Dumped $13 Billion in Gold This Year

High Treasury yields cut the lure of the precious metal.

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Reviewed by: Mark Nacinovich
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Edited by: Ron Day

Investors pulled a whopping $12.7 billion from exchange-traded funds holding physical gold through the end of October this year, as sky-high interest rates made the precious metal less alluring, according to a report from the World Gold Council.

Physically backed gold ETFs track the price of gold through direct ownership of the metal. While the largest such fund, the $56.3 billion SPDR Gold Trust (GLD), owns bars of gold held in vaults in London, the iShares Gold Strategy ETF (IAUF), in contrast, tracks the price of gold using the commodity futures market.

High interest rates were a leading cause of outflows this year, according to GLD sponsor World Gold Council. As rising rates pushed Treasury yields higher, those who stayed in gold missed out. Gold and Treasuries are both meant to be safe-haven assets during times of risk and market turmoil, and so the more attractive Treasuries become, the less lustrous gold appears in comparison.

Global Gold ETFs 

This year’s gold fund flows shared a notable trait: uneven geographic distribution. For example, of October’s $2 billion in net outflows from physical gold ETFs worldwide, most (about $1.6 billion) came from North America, while about $600 million stemmed from Europe. Other markets, including $81 million in Asia, experienced nearly $140 million in inflows.

Year-to-date flows follow a similar pattern, with $5.8 billion in North American outflows, $7.8 billion in outflows from Europe and $1 billion of inflows from Asia.

Peaking Yields: A Golden Opportunity?

While high bond yields have siphoned funds out of gold ETFs after rising most of the year, the yield on the 10-year Treasury bond peaked in late October at about 5%. Since then, it’s tumbled to 4.4%, with the five-, 20-, and 30-year Treasuries experiencing similar declines. The one-year Treasury yield, however, has remained fairly flat.

If this trend continues, it could prove a boon to physical gold ETFs, lowering the opportunity cost for gold. In a potential sign the sector may be starting to experience a turnaround, GLD has received $1.5 billion in inflows so far, in November, according to etf.com data.

Contact Gabe Alpert at [email protected]  

Gabe Alpert is a former data reporter at etf.com with over seven years’ experience in financial journalism. He also previously contributed reporting and analysis to Barron’s Magazine, Investopedia and other publications.