Gold ETFs Spike as Banking Fears Spread

The precious metals ETFs have jumped more than 7% year to date.

Investors are flocking to gold exchange-traded funds following weakness in the banking sector and a subsequent slump in confidence.

The SPDR Gold Trust (GLD), the largest gold ETF, has pulled in $489 million so far this year, etf.com data shows. That’s a reversal from the more than $1 billion in outflows the fund saw in the last quarter of 2022, the data shows. Meanwhile, the SPDR Gold MiniShares Trust (GLDM) has hauled in $431 million during the same period.

Last week, gold prices surged beyond $2,000 an ounce on rekindled fears of a banking crisis in the wake of the Credit Suisse takeover. That’s the first time bullion has traded above $2,000 since March 2022.

Though spot gold prices eased slightly to $1,969 by Tuesday, they remain 7.7% higher than the $1,826 at which the metal started the year. Meanwhile, gold futures have inched up 7.6% year to date to $1,986.

But that uptick in price and rush to gold ETFs may be due to a crisis of confidence, as recent tumult in the U.S. banking industry led to the collapse of several banks before spreading to Europe and rattling that continent’s financial sector, according to Will Rhind, founder and CEO of GraniteShares.

“Gold can't go bankrupt,” Rhind said in an interview with etf.com. “People have always fled to gold in an environment where they don't have confidence in putting money in a bank account or buying bonds from either a government or from a corporation.” 

GLD has gained 7.3% year to date, according to etf.com data, while GLDM has jumped 7% as concerns over banking failures remain elevated. Deutsche Bank stock has sunk more than 22% in the past month on renewed market jitters.

Also spurring the gold rally could be a weaker U.S. dollar and a prospective easing of interest rates from the Federal Reserve,” said Ed Egilinsky, managing director at Direxion.

“Gold and even silver are very sensitive to dollar strength or weakness; there's an inverse relationship between those two,” he added. 

“You've had a weaker dollar here, a little bit of a shift with the Fed in terms of maybe how aggressive they're going to be going forward. As a result, rates have started to drop,” Egilinsky explained, noting how the factors have given gold more traction.

Contact Shubham Saharan at [email protected]