GLD: Burry Magnifies Physical Gold ETF Interest

The famous hedge fund manager bought shares of a gold fund in Q1.

Hedge fund manager Michael Burry, famous for his “big short” during the subprime mortgage crisis starting in 2007, has turned his attention to an investment much older than mortgage-backed securities: physical gold. 

Burry’s firm, Scion Asset Management, reported in a filing with the Securities and Exchange Commission that it holds a Canadian physical gold fund. 

Scion’s form 13-F, a required quarterly report for firms with at least $100 million in assets under management, revealed securities held by the firm as of March 31, most notably shares of Sprott Physical Gold (PHYS), a closed-end fund registered in Canada.

The largest physical gold exchange-traded fund, SPDR Gold Shares (GLD), is up more than 19% in the past three months, outshining the S&P 500's gain of just over 6 in the same period%, as measured by the SPDR S&P 500 ETF Trust (SPY).

Why did Burry buy a physical gold fund in Q1? Is now a good time to invest in gold? What are the top exchange-traded funds that offer exposure to the price of gold? 

Why Would Burry Invest in Gold in 2024?

Burry’s Scion filing with the SEC offers no explanation for buying a physical gold fund in the first quarter, here are potential reasons for buying the precious metal in 2024: 

Inflation Hedge

Inflation has been a major concern in 2024, with rising prices eroding the purchasing power of currencies. Gold is often seen as a hedge against inflation, as its price has historically tended to rise over time. Investors might turn to gold to protect their portfolios from inflation's effects. 

Safe-Haven Demand

Economic uncertainty and ongoing geopolitical tensions around the world, including the ongoing Ukraine war and Israel/Palestine war, can create a flight to safety among investors. Gold, a perceived safe-haven asset, often benefits from such uncertainty as investors seek to preserve their wealth. 

Impact on Currency Exchange

Gold is often denominated in U.S. dollars (USD). When interest rates fall in the US, the USD might become less attractive to foreign investors seeking higher returns elsewhere. A weakening USD can make gold, priced in USD, relatively cheaper for foreign investors, potentially increasing demand and pushing up the price. 

Central Banks Buying Gold

Central banks around the world, particularly those in China, have been major buyers of gold in recent years. This strong and consistent demand from central banks can help support and potentially push up the price of gold. 

Reduced Opportunity Cost

The Federal Reserve is expected to begin cutting interest rates in 2024. When interest rates fall, the returns offered by bonds and other fixed-income investments become less appealing. This makes gold, which doesn't offer regular income, relatively more attractive to some investors.

How Do Physical Gold ETFs Work?

A physical gold ETF is a type of exchange-traded fund that seeks to track the price of gold as closely as possible. To do this, the fund holds physical gold bars in secure vaults on behalf of its investors. Thus, physically backed gold ETFs offer investors exposure to the price of gold without having to store physical gold themselves.

When investors buy shares of a physical gold ETF, their money is used to proportionally increase the amount of gold held by the trust. Conversely, when investors sell their shares, the ETF trust sells a corresponding amount of gold to meet the redemption request.

Top Physical Gold ETFs by AUM

Data as of May 15, 2024. For more information, see our article, How Does a Gold ETF Work?

Outlook for Gold ETFs in 2024

Looking ahead, the future trajectory of gold prices will depend on how contributing factors evolve. If the Fed cuts rates as expected, geopolitical tensions persist, and inflation remains a concern, gold prices could continue to rise in 2024. However, if the economic climate stabilizes or the U.S. dollar strengthens significantly, the price of gold could potentially go down. 

Overall, physical gold ETFs offer a secure and convenient way to gain exposure to the gold price for investors who don't want the hassle of storing physical gold themselves. However, it's important to understand the structure, benefits, and drawbacks before investing in any gold ETF.