ETF Investors Skeptical Of Gold Despite Rally

Though gold is rallying in January as it's typically done in the past few years, ETF investors aren't the ones driving the metal higher.

Senior ETF Analyst
Reviewed by: Sumit Roy
Edited by: Sumit Roy

Last year was a rollercoaster ride for gold. Prices zoomed higher during the first half of 2016, rising by nearly 30% by the summer. But a sell-off at the end of the year left the yellow metal with a much more modest gain—8.6%.

This is a pattern we've seen a number of times in the gold market―a strong start to the year followed by a much more lackluster end.

In fact, in three of the last four years, the high-water mark for gold prices was reached as early as the first quarter. The only exception was last year, when prices continued higher until July. 

YearGold's High DateGold's High Price ($)Gold Year-End Price ($)
2016Jul. 81366.381152.27
2015Jan. 221302.131061.42
2014Mar. 141383.051184.86
2013Jan. 221692.71205.65


It's too early to say whether 2017 will fit that mold, but at least the first part of the pattern is continuing. So far in the new year, spot gold is up 4.3%. According to traders, this year's January resurgence in the yellow metal is due to a drop in the U.S. dollar, which sagged more than 2% since the start of the year.

ETF Investors Not Buying

However, unlike last year, it's not ETF investors that are driving gold higher in 2017. In the year-to-date period ending Jan. 18, the SPDR Gold Trust (GLD) and the iShares Gold Trust (IAU)―the two largest physically backed gold ETFs―had had combined net outflows of $440 million, according to FactSet.


In contrast, the two had net inflows of $870 million at this time last year, on their way to a record-shattering $15 billion worth of inflows by midyear.

The worst start to a year ever for the stock market in 2016, tumbling oil prices, concerns about China, negative interest rates and Brexit were several of the big factors driving ETF investors into gold last year. Most of those factors aren't present, or have even reversed, this year.


Case in point, the stock market is at an all-time high, oil prices are double where they were a year ago, China's economy is relatively stable, interest rates are rising, and Brexit hasn't turned out to be the negative shock everyone thought it would be. All this could change, but the economic and financial market outlook is starkly different today than it was a year ago, which has dampened enthusiasm for gold among ETF investors.

Pro-Cyclical Demand

That doesn't mean gold can't continue to climb. ETF investment is only one—though an increasingly important—component of global gold demand. Jewelry demand, the largest segment of overall gold consumption, is pro-cyclical, and may get a boost if economic growth in the U.S. and globally accelerates this year as many expect.

That holds even truer for other precious metals, which garner a larger chunk of their demand from pro-cyclical areas. Silver, where industrial demand accounts for 60% of consumption, outpaced gold last year, and is outperforming again this year, with a 7% year-to-date gain.

Meanwhile, palladium, the top-performing precious metal of last year, is leading again this year, with a 10% return so far. Strong demand for automobiles, and particularly gasoline-fueled cars, is driving the autocatalyst higher, according to analysts.

"The recent spike [in palladium ]has a bit of everything thrown into the mix—improving fortunes of automakers, growing mistrust of the diesel engine [courtesy of VW and Fiat Chrysler scandals] and supply/demand permutations," Charles Long, mining analyst at Beaufort Securities, told the International Business Times.

On the other hand, platinum―used as an autocatalyst in diesel vehicles―is the laggard of the group, as those types of vehicles fall out of favor.

At the time of writing, the author did not own any of the securities mentioned. Contact Sumit Roy at [email protected].


Sumit Roy is the senior ETF analyst for, where he has worked for 13 years. He creates a variety of content for the platform, including news articles, analysis pieces, videos and podcasts.

Before joining, Sumit was the managing editor and commodities analyst for Hard Assets Investor. In those roles, he was responsible for most of the operations of HAI, a website dedicated to education about commodities investing.

Though he still closely follows the commodities beat, Sumit covers a much broader assortment of topics for, with a particular focus on stock and bond exchange-traded funds.

He is the host of’s Talk ETFs, a popular video series that features weekly interviews with thought leaders in the ETF industry. Sumit is also co-host of Exchange Traded Fridays,’s weekly podcast series.

He lives in the San Francisco Bay Area, where he enjoys climbing the city’s steep hills, playing chess and snowboarding in Lake Tahoe.